Some commentators believe the move towards principles-based regulation means that smaller firms will be able to issue non-compliant promotions and get away with it.
The pages of Mortgage Strategy have hosted a healthy debate on this subject over the past few months. For example, in the May 21 issue, Steve Walker, managing director of Promise Finance, said about small firms that “their advertisements… may not come under scrutiny due to the size of their business which, combined with their ability to duck and dive, means they will never upset too many people”.
And in the March 12 issue, Simon Robins, compliance director at Chase UK, expressed his view that “provided a firm is small fry and advertises in local newspapers rather than nationals, the regulator is not interested”.
Meanwhile, in the March 26 issue, sole trader Peter Sowerby wrote about his experience.
“I have referred glaring breaches of Financial Services Authority rules on financial promotions to the FSA, yet have seen no sign of action,” he said.
And in the same issue, Stuart Wilson of Lemon Squeezy Marketing pointed out that websites aimed at sub-prime customers were the worst offenders when it comes to non-compliance with MCOB3.
Many readers may be unsure how to put the financial promotions rules into effect or have seen non-compliant promot-ions published by competitors, seemingly with no response from the FSA.
So where does the regulator stand on this issue and what has been done to stop firms abusing the rules? A good source of information on this is the FSA’s Financial Promotions Bulletin, published in April. On the subject of mortgages, the first piece of information in the bulletin reminds readers that mortgage promotions for sub-prime products are higher risk because of the vulnerable nature of the target audience and because of the large sizes of transactions.
Over the past year the FSA has reviewed several hundred mortgage promotions including flyers, classified ads and websites, and we are reminded that more than 200 firms have been told to withdraw or amend misleading promotional material. Often, poor control of promotions is indicative of poor control of firms’ processes and quality of advice, we are warned.
Problem areas highlighted in the bulletin include where fees differ from those advertised and where clients are sold sub-prime mortgages with no evidence of them having impaired credit. Four firms have been referred for further action. On the bright side, subsequent FSA work has shown some improvements and the level of compliance in national tabloid financial promotions is now around 90%.
Another indication of the expected standard of promotions concerns fixed and discounted rates. Such promotions must be balanced and give as much prominence to disadvantages as benefits. For example, if a promotion describes an initial low rate it must give no less prominence to early repayment charges and arrangement fees. Also, APRs must be clearly displayed and misleading claims avoided.
Regarding general insurance, the payment protection insurance and accident, sickness and unemployment insurance issue is not included in this bulletin, possibly because it has been so extensively covered elsewhere. Instead, the topic of price claims in a price-sensitive market takes centre stage. The general insurance sector has been reviewed as part of this theme, with the FSA particularly concerned about promotions that make general claims about price savings that only apply to a small sample of the target audience.
Remember to look at comments that are not specific to the mortgage and general insurance sectors but still have relevance. For example, the section on balancing and targeting direct mail refers mainly to investment products but the comments (notably about careful targeting) apply equally to mortgage promotions.
A link to the bulletin can be found on the financial promotions homepage in the ‘Doing business/being regulated’ section of the FSA’s website.