The Financial Services Authority has of late been focusing on the lack of compliance in financial promotions, particularly in the sub-prime sector. In its August report last year, it found “limited improvements” from its research into the sub-prime market. So it is worth remembering what the regulator looks for when it surveys the thousands of adverts and other promotions, in particular adverts and direct mail.
A “qualifying credit promotion”, for instance, is based on a regulated mortgage contract or other qualifying credit, which is secured lending undertaken by an authorised firm on first or second charge. But there are exemptions. If a promotion states only a company name, logo, the fact a firm deals in mortgages and a point of contact, it will be exempt. Communications from lender or packager to intermediary are also exempt, but while many buy-to-let mortgages are not covered by the regulator, their promotion does fall under these rules.” A key principle of the financial promotion rules is that promotions and communications must be clear, fair and not mislead”To ensure promotions come to market in a fit state, the FSA created the process of authorised firms and individuals that must sanction the promotion before it can be published. One rule is the requirement to maintain a rigorous audit trail.
A key principle of financial promotion rules is that promotions and communications must be clear, fair and not mislead. So make risk warnings, annual rates and regulatory statements clear in promotions.
The calculation of APRs has long been a thorny issue in the industry, and financial promotion rules do not give the clarity many would like. APRs must always be attributed to any named product in a promotion. To be clear, fair and not misleading, there is a case for using representative APRs where sub-prime products are referred to in general terms. But here the help runs out, as the FSA does not give specific guidance on how representative APRs should be calculated. Networks and lenders may have a view, but however you proceed, ensure all communications and decisions are documented.
Several issues persist. These include poor audit trails such as APR errors, procedural issues, incorrect authorisation status disclosures and risk warnings. Most are avoidable and many websites offer help, not least the FSA’s. To navigate the rules of financial promotions, keep the following points in mind.
Make sure you document how your products and services are designed for a particular market and how the communication reflects that market’s needs. Make sure the right people are involved in sanctioning the promotion and that monitoring procedures are in place. Finally, make sure the promotion is clear, fair and does not mislead.
The financial promotions rules promote best practice, but can appear overbearing and woolly. But remember that no-one wants to stop financial intermediaries trading. This regulation is to protect consumers, so if you are about to do something that could be seen as a disadvantage to the consumer – don’t.
Matt Smith is managing director of WPB Creative