UK financial regulator releases data on financial promotions

The recently released data covers the period from 1 October 2023 to 31 December 2023 and shows how the FCA has used its powers in relation to financial promotions.

The FCA can direct a firm to withdraw or modify its financial promotions and limit company powers to approve promotions. The most common approach taken by the regulator is to seek amendments to promotions on a voluntary and informal basis.

Jonathan Cavill, financial regulation and enforcement expert at Pinsent Masons, said: “Firms must view financial promotions, like all aspects of their businesses, through the lens of consumer duty. In particular, the FCA will expect firms to show they fully understand any investment products being promoted, including their pricing and distribution arrangements, with a focus on ensuring they are suitable for their target markets and in the best interests of UK clients.”

Financial promotions, and all communications with current or potential clients, must be clear, fair, and not misleading under Principle 7 of the FCA’s Principles for Businesses. Firms must not invite or induce people to engage in specified investment or claims management activities unless the firms issuing the promotions are authorised by the FCA or have the approval of an authorised person under the Financial Services and Markets Act 2000 (1,260 pages / 26 MB).

There are also specific rules in the FCA Handbook on the content of promotions concerning sectors like consumer credit and insurance. In particular, cryptoasset promotions are subject to stringent rules requiring the display of clear risk warnings, stipulated by the Conduct of Business Sourcebook.

Nicholas Kamlish, financial regulation specialist at Pinsent Masons, said: “Financial promotions need to be reviewed before issue, approval and on a regular basis afterwards to ensure they are clear, fair and not misleading, as well as complying with any specific rules relating to the relevant sector. Any claims about investments or crypto-assets should be supported by evidence and appropriate due diligence and include prominent references to product fees and risks.”

The FCA is expected to increase its use of supervisory powers in relation to financial promotions, as well as starting to take enforcement action in respect of “repeat offenders” or in circumstances where a clear customer detriment can be proven.

Cavill said: “Firms should consider likely consumer behaviour and biases, and not include features like binary or repeated questions in promotions or customer journeys more generally which could be seen to guide or steer people towards buying a financial product. It will be important to have evidence that promotions have been tested, for example in focus groups, and any feedback has been actioned, when engaging with FCA supervision.”

The recently published data report also includes a series of case studies showing when the FCA will intervene to have promotions amended or withdrawn. Examples include a consumer credit firm which was potentially misleading consumers by promoting that it offered lower and fairer loan rates when this might not be the case. Additionally, the FCA intervened where a firm which had already approved several financial promotions for an unregistered cryptoasset entity before applying for permission to approve promotions under the new scheme.

The report also highlighted intervention where firms were potentially misleading consumers through social media and websites, including the use of influencer marketing. “Firms need to be mindful of the scope of the financial promotion requirements. These apply to any promotions by a firm and its affiliates or introducers, which might include blogs, webinars, or social media posts by influencers. Firms therefore need to maintain robust systems and controls across their communication channels and take prompt steps to identify and remediate non-compliance,” Cavill said.