Out-Law Guide | 27 Mar 2006 | 11:44 am | 3 min. read
This guide is based on UK law. It was last updated in September 2008.
Firms must also comply with the Treating Customers Fairly principles when advertising financial products.
FSMA regulates both the straightforward advertising of certain financial products and the communication of material which induces a recipient to buy or sell a product. The products it covers include shares, options, futures, CFDs, units in funds, pensions, investments, bank accounts and insurance products. It does not cover credit and loans which are dealt with by the Consumer Credit legislation as discussed below.
If a firm is involved in communicating any material which is subject to the FSMA regime then the material must be either sent in reliance on an applicable exemption in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 ("FPO") or it must be approved by a Financial Services Authority ("FSA") authorised person as complying with the FSA's rules.
There are numerous exemptions in the FPO which, in very broad terms, permit communications to certain types of investor provided that care is taken to ensure that all of the recipients of the material fall within one of the exemptions and provided that prescribed warnings and statements are provided with the promotional material. In addition there are exemptions in the FPO which relate to specific types of transactions (such as the sale of a body corporate or an offer of an employee share scheme). Legal advice must be obtained about the application of these exemptions.
The FSA's rules in respect of financial promotions are set out primarily in Chapter 4 of the FSA's Conduct of Business Sourcebook ("COBS"). The application of the rules in COBS depends on a number of factors including whether the firm is subject to the Markets in Financial Instruments Directive ("MiFID") and communicating material in relation to its MiFID business and whether an exemption in the FPO applies. In some circumstances the rules in COBS 4 can apply to promotions made by FSA authorised firms even though the authorised firm may have been entitled to rely on an exemption in the FPO. The application of the rules in COBS 4 also depends on the type of person that may receive the promotion and whether they would (if they were a client) fall within the FSA's Retail Client, Professional Client or Eligible Counterparty categories.
Key rules in COBS 4 which can apply (depending on the above matters) are rules relating to:
There are also extensive restrictions on cold calling by UK persons.
Legal advice as to the application of the rules in COBS 4 must be obtained by FSA authorised firms.
The FSA has power to:
Some of the key issues are:
The FSA have issued a number of other penalties in relation to FSA authorised firms who have not complied with the FSA's rules. The relevant Final Notices (and examples of non-compliant adverts) can be viewed on the FSA's website.
In addition, by December 2008, firms must be able to prove that they are Treating Customers Fairly (TCF). Although the concept of TCF has been in existence since 2001, by December 2008 firms must have evidence to prove that they are meeting the TCF outcomes (see: Treating customers fairly: measuring outcomes).
In practice, this means that firms must be able to consider their business and identify the relevant outcomes, ensure they have evidence in place to measure whether they are delivering the outcomes and consider the evidence and act upon it if necessary. It is essential that any financial promotions are TCF compliant and the December 2008 deadline means that there has to be evidence to prove that this has been a consideration in the product design process.