The Financial Conduct Authority (FCA) has told claims management companies (CMCs) that they must do more to ensure their promotions do not mislead potential customers.
On 23 August, the Authority announced a number of new rules in relation to financial promotions issued by CMCs. These new rules aim to ensure that CMCs provide information to consumers that is fair, clear and not misleading.
The FCA and CMCs
The financial regulator took over regulation of claims management firms on 1 April 2019.
Among the new regulations CMCs now have to comply with are requirements relating to:
- Due diligence on lead generation and rules
- Providing clear, upfront information to customers about the fees they charge and the services they will provide
- Giving customers a summary document about the services they will provide before the customer signs a contract
- Telling customers about free alternatives such as the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS), including in advertising
- Recording and retaining customer telephone calls for a year after their final contact with a customer
In June, the FCA sent a ‘Dear CEO’ letter to claims management firms, flagging a number of areas where the regulator has found practices falling short of its standards. The regulator has also teamed up with the Competition and Markets Authority to improve competition among CMCs.
How does the FCA want claims companies to improve advertising standards?
The new rules introduced last month require CMC firms to:
- identify themselves as a claims management company
- prominently state if a claim can be made to a statutory ombudsman / compensation scheme without using a CMC and without incurring a fee
- include prominent information relating to fees and termination fees which the customer may have to pay if a firm uses the term ‘no win, no fee’ or a term with similar meaning
The rules are ‘designed to help consumers make an informed choice whether to use the services of a CMC’.
Examples of bad practice in CMC advertising
Launching the new rules, the FCA highlighted areas of poor practice it has identified.
The regulator reviewed a range of CMCs’ financial promotions – including webpages and social media. Examples of bad practice they found included firms that:
- fail to identify themselves as a claims management company
- fail to state that the customer could make a claim to a statutory ombudsman or statutory compensation scheme, such as the Financial Ombudsman Service, without using the services of the firm, and without paying a fee
- appear to give consumers the impression that they would get a better outcome if they use the services of the CMC
- use the term ‘no win no fee’, but do not set out the fees that the customer must pay
- include only case studies where the compensation provided to consumers is very high, even though the average amount received by consumers is considerably lower
- include important information in small font or in a position that is difficult to see, when it should in fact appear prominently in a promotion
How can you comply with the new rules?
The new rules are pretty self-explanatory, setting out how the FCA expects claims management companies to behave when producing financial promotions.
As well as complying with the new rules above, there are other steps Marketing Managers can take to make sure their financial promotions live up to the regulator’s expectations:
- If you’re new to the world of FCA regulation, familiarise yourself with the Authority’s rules about financial promotions compliance – you may be surprised!
- Because financial promotions aren’t all about print, your website and social media also fall under the rules. Ensure they’re compliant too
- Make sure your promotions follow the rules on being fair, clear and not misleading
- Small print is an important element of ads and communications – read tips on making yours fair
- Make sure you follow FCA guidelines around prominence
- Ensuring that promotions are suitable for their audience is another key focus for the regulator. Make sure your ads follow the rules on suitability
- Understand wider requirements around ad standards. The FCA isn’t the only regulator responsible for ad quality – the Advertising Standards Authority and Committee of Advertising Practice set rules that all advertisers must follow.
You can read their latest report, which gives pointers on their approach and requirements, here
- Finally, financial promotions compliance isn’t all about the end result. You also need to make sure your production, review and approvals processes are up to scratch. Writing content your Compliance colleagues can approve first-time will help.
How will the FCA tackle firms that don’t meet their standards?
The regulator has been getting tough recently on financial promotions that don’t comply with its rules. Misleading promotions have been in the FCA’s sights, particularly following the collapse earlier this year of investment firm London Capital & Finance.
The FCA isn’t afraid to challenge unclear, unfair and misleading promotions.
Publishing the new rules, Jonathan Davidson, FCA Executive Director of Supervision – Retail and Authorisations, said that: “CMCs using misleading, unclear and unfair advertising practices to get business is completely unacceptable. We won’t hesitate to take action where we consider that customers are being misled or otherwise treated unfairly by poor advertising.”
Firms awaiting full FCA authorisation were also warned that “we will take their compliance with our rules on financial promotions into account when considering applications for full authorisation.”
Ensure you meet financial promotions requirements
FCA compliance can be complicated, particularly if you’re new to the world of regulated marketing.
LS Consultancy has wealth of experience in reviewing financial promotions and can do so on a one-off or on an on-going basis.
We are also skilled in reviewing and assessing your financial promotion procedures and can assist you to establish the necessary framework to help future compliance with regulatory requirements.
Remember: Not everything is black and white when it comes to Financial Promotions, and many of the rules are open to interpretation. If you are unsure how your activities fit within the rules, please contact us.