The balance between producing good marketing and achieving compliance has always been a tricky one.
Get it right and you reap the rewards. Get it wrong and it’s a whole different matter, potentially leading to regulatory intervention and even reputational damage for your firm.
While financial promotions can initially seem complicated, there are ways to reduce the regulatory risks associated with marketing your services.
Here we’ll set out the regulation and legislation that governs financial services promotions, and explain the impact of the product governance rules (PROD) and senior managers and certification regime (SM&CR).
How financial promotions are regulated
Promotions about financial services are regulated by the Financial Conduct Authority (FCA), though there is some overlap with the Advertising Standards Authority (ASA) and other industry bodies. The ASA tend to be a reactive regulator, in that they respond to complaints about promotions, but the FCA is both reactive and proactive.
The FCA has a special team dedicated to financial promotions and they actively review promotional content for potential issues.
They also investigate reports about promotions that are potentially misleading, unfair or unclear.
Understanding section 21
When getting to grips with financial promotions, it’s also worth flagging section 21 of the Financial Services and Markets Act (FSMA) 2000. FSMA is an Act of the Parliament of the United Kingdom that created the Financial Services regulator.
This contains a restriction on the communication of financial promotions. It makes clear that a firm must only issue a promotion if it is authorised, if the content of the promotion has been approved by an authorised firm or if the promotion is deemed to be ‘exempt’ from the rules.
Some promotions are exempt from the specific financial promotions rules, such as ‘image advertising’ type promotions that simply provide the name of the firm and a brief, factual description of the firm’s activities.
The impact of PROD and SM&CR
The PROD rules aim to improve a firm’s oversight and governance processes, and its systems and controls for the design, approval, marketing and managing of a product throughout its life cycle.
In the case of financial promotions, this means firms should have adequate governance and oversight to ensure they understand the products and services being promoted and that they are only marketed to the appropriate target audience.
PROD is a bit of a buzz word at the moment, but the expectation to know the product/service you are marketing and ensure the target audience is appropriate is not new. This requirement has been around for a long time – the PROD rules merely reinforce expectation.
Aside from compliance, targeting the appropriate audience is common sense anyway. After all, marketing is likely to be more effective when directed at the right people.
The other set of rules that impacts financial promotions is the SM&CR.
As part of this, firms will need to ensure every senior manager has a statement of responsibilities (SoR). As it says on the tin, this needs to clearly set out the senior manager’s role and responsibilities.
A senior manager will need to take responsibility, and be accountable for, the firm’s financial promotions and this responsibility needs to be included in the individual’s SoR.
Requirements for financial promotions
The FCA’s rules on financial promotions are spread across various FCA handbooks, depending on the type of business being promoted.
The overarching requirement is for the promotion to be fair, clear and not misleading. It’s worth remembering the FCA is an outcomes-based regulator, whose rules and guidance provide a framework to achieve the right outcomes.
This means compliance with specific rules may not result in compliance overall. Firms need to take care they don’t fall into a checklist type approach to their financial promotions. There is no harm in using a checklist. However, problems may arise where checklists are used in isolation i.e. when all the boxes may have been ticked but no-one has stood back and determined whether the material actually meets the rules. So, using a checklist alone will not necessarily guarantee compliant promotions.
Here’s a high-level checklist of what to consider and the systems and controls needed when it comes to financial promotions:
- Senior management responsibility – This must be a suitably qualified or knowledgeable person with appropriate expertise, in terms of both the product or service and the regulatory requirements
- Due diligence in terms of the product or service
- Details of products that either can’t be marketed generally or can only be marketed to certain client types
- Identifying the intended target audience for the product or service
- Approval of financial promotions (including those of any appointed representatives, as they are not permitted to approve their own promotions)
- Review, expiry or reapproval of financial promotions to ensure continued compliance
- The management information required and how it is used
- Record keeping for each financial promotion approved
How can we help?
At LS Consultancy, we offer a number of distinct products and services which can be deployed individually or combined to form a broader solution including copy advice.
When you face business or regulatory challenges, we provide solutions that are tailor-made to your needs with a view to releasing your energies to focus on your clients.
We work both within individual teams and across many departments to offer a complete solution, with a range of cost effective, compliance and marketing solutions which are uniquely suited to supporting firms.