What constitutes as a financial promotion?

Sep 20th '19

What constitutes as a financial promotion?


As a Compliance professional, you’re familiar with financial promotions. You probably spend a lot of your time reviewing and approving them.


It’s always good to have a refresher. What is the Financial Conduct Authority’s (FCA) definition of a financial promotion? What do you have to do to make sure your promotions meet the FCA’s standards?


Here’s our guide to what constitutes a financial promotion – and how you can make sure yours are compliant.



How does the FCA define a financial promotion?

In the FCA handbook, financial promotions are defined as an ‘invitation or inducement to engage in investment activity’.


In other words, it is any communication that promotes your brand or your firm’s products, or invites or attempts to persuade customers to buy the products and services you market.


And that doesn’t apply just to invitations or inducements by your employees. It also covers products promoted by ‘appointed representatives’.


Appointed representatives are defined as any firm that: ‘Conducts regulated business on behalf of a directly FCA-authorised firm, who is its ‘principal’. The principal firm takes regulatory responsibility for the appointed representative, and must ensure it meets FCA requirements.’


So if you delegate the sales of your products and services to third parties – such as Independent Financial Advisers (IFAs) – you retain responsibility for any materials they issue on your behalf.


A regulatory review into the insurance sector in 2016 was critical of the way some firms oversee their appointed representatives and ensure that their activity meets regulatory requirements.  This is just one of a number of potential pitfalls regulated firms come up against when outsourcing their marketing activity. You may want to revisit the rules to make sure that if you use appointed representatives, they act in a compliant way.


Financial promotions aimed at intermediaries, such as brokers, also fall under the regulator’s rules.


What are the FCA’s rules on financial promotions?

Any firm regulated by the FCA is bound by its ‘Principles for Business’.


Some of these Principles are directly relevant to FPs:


  • Principle 2 – A firm must conduct its business with due skill, care and diligence
  • Principle 3 – A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems
  • Principle 6 – A firm must pay due regard to the interests of its customers and treat them fairly.
  • Principle 7 – A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is fair, clear and not misleading (read more about what this means in practice here)


The process a firm should follow when developing a new financial promotion is set out in a fairly prescriptive way in the FCA Handbook’s ‘Conduct of Business Sourcebooks’.


What does the FCA Handbook say on financial promotions?

The handbook states that: ‘When providing information to customers, a firm:


  • Should pay regard to its target market, including its likely level of financial capability;
  • Should take account of what information the customer needs to understand the product or service, its purpose and the risks, and communicate information in a way that is fair, clear and not misleading; and
  • Should have in place systems and controls to manage effectively the risks posed by providing information to customers and ensuring fair outcomes to customers.’


These requirements cover promotions including:


  • Print, online, television and radio adverts
  • Marketing brochures and literature
  • Direct mail
  • Web content
  • Email marketing
  • Social media
  • Sales aids, such as presentations


Firms working on digital marketing activity need to realise that whether it’s a website, email or social media, it falls under the FCA’s usual financial promotions requirements.


All digital marketing is categorised as ‘non-real time’ promotions – not ‘real time’ promotions, like conversations, which are exempt from the same stringent rules.


This means that your social media posts, emails and web content all need the same rigour around reviews, approvals and record-keeping as any other marketing collateral.


Read more about compliant social media to ensure sure your Twitter and other social media posts follow the rules.


Why financial promotion compliance is important

There is a range of reasons. First, your responsibility to your customers. Firms need to ensure that their promotions are suitable, especially if you are communicating with customers identified as vulnerable.


Then there are more prosaic drivers. The regulator has the power to ban your promotions if they don’t meet its requirements – wasting your time and money.


You risk reputational damage from publishing non-compliant financial promotions– a worry when governance is more important than ever to your corporate reputation. You also need to be alive to potential fines; it’s estimated that the banking sector was fined more than £53bn in the 15 years to 2016.


Recent and upcoming regulation – like the Senior Managers and Certification Regime – focuses responsibility for compliance, in financial promotions as well as operations, firmly on key individuals within the firm. This reflects a wider regulatory shift towards increased individual accountability– and evidences a very personal incentive for ensuring your marketing activity meets regulatory compliance requirements.


With so many reasons for making your marketing and customer communications compliant, it’s worth refreshing your knowledge on FPs.


How can we help!

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.


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