Financial promotions – the FCA’s push continues

As we have previously reported (see our previous articles here and here), the FCA is increasingly turning its attention to issues regarding financial promotion.

Two recent developments further illustrate this point:

• the FCA has published a webpage to illustrate case studies of good and bad financial promotions; and
• in a letter to the House of Commons and Work and Pensions Committee (the WPC), the FCA’s Chief Executive, Nikhil Rathi, has expressed concern over what he describes as an "alarming increase" in fraud committed online (primarily on online platforms such as search engines and social media platforms) and set out his views on changes to (a) exemptions under the Financial Promotions Order 2005 (the FinProm Order) and (b) the Online Safety Bill.

Taking these in turn:

1. The FCA’s case studies of financial promotions

On 9 June 2021, the FCA published a webpage with two video case studies to illustrate examples of good and bad practice when it comes to promoting financial services online.

This is part of an initiative by the FCA to increase consumer protection in this area, a push that includes the April 2021 Discussion Paper DP21/1, “Strengthening financial promotion rules for high-risk investments and firms approving financial promotions”
The videos address the FCA’s concerns about online fraud and note that online financial promotions published in various forms across a wide ranges of social media platform and websites can significantly influence a consumer.

The two case studies illustrate that, whatever form or media is used for it, a financial promotion must be (a) clear, (b) fair and (c) not misleading.

The webpage notes that it is "vital" that financial promotions comply with the relevant FCA rules.

2. Nikhil Rathi’s letter to the WPC

High Net Worth (HNW) and sophisticated investor exemptions in the FinProm Order

In his letter of 11 June 2021 (published on 13 July 2021), Mr Rathi notes that:

• the exemptions in the FinProm Order for HNW and sophisticated investors are “a significant vulnerability” in the financial promotion regime;
• these exemptions enable unauthorised firms to issue financial promotions to HNW and sophisticated investors “without having to comply with any of [the FCA’s] rules, even the basic clear, fair and not misleading requirements”; and
• there is a correlation between the strengthening of FCA rules and an increase in firms using the exemption to market high-risk investments to ordinary consumers online.

Mr Rathi recommends that both (a) the ability to self-certify qualification for the exemptions and (b) the thresholds in them need to be addressed – any changes made to the exemptions, though would be a matter for Parliament.

The Online Safety Bill

The letter also noted Mr Rathi’s hope that the Online Safety Bill would be revised:

• to cover paid-for advertising, as well as user-generated content – which he cites as being “the major source of the problems leading to very significant consumer harms”
• to require online platforms (such as search engines and social media platforms) to identify and remove fraudulent content” regardless of its format”
• to ensure that the Duties of Care in the Bill encompass an obligation to prevent the communication of financial promotions that have not been approved for communication by an FCA-authorised firm, by requiring online platforms and their senior managers to implement measures including:
  • appropriate gateway systems and controls to prevent publication;
  • steps to ensure fraudulent and misleading financial promotions are dealt with rapidly; and
  • processes that allow authorities to share intelligence on non-compliant financial promotions.

(Since the letter was published, the Joint Committee on the Draft Online Safety Bill has been established and is scheduled to report by 10 December 2021.)