Sub-prime and GI promotions still not up to scratch, says FSA

The Financial Services Authority says there has been little improvement in the number of sub-prime and general insurance promotions failing regulatory standards.

The FSA has today published a report detailing its financial promotions work over the last two years, including an evaluation of industry progress and an outline of future plans in this area.

The FSA evaluated nearly 1,000 financial promotions to assess industry progress during this period.

While it found variations in standards across firms and different sectors of the market, on the whole there has been a drop in the number of promotions regarded as high risk to consumers.

The number of investment promotions which fell below regulatory standards had dropped from 52% in 2004 to 32% in 2006 .

But there had been only limited improvements in the general insurance and sub-prime mortgage sectors. The FSA says standards need to improve further and senior management need to put robust systems and controls in place to ensure consumers are treated fairly.

The FSA will continue to carry out work on financial promotions for investments, insurance and mortgages using the full range of regulatory tools available. Some of the higher risk areas it will focus on include direct mail, internet promotions, mortgage brokers, spread betting and venture capital trusts.

As part of its work over the last two years, the FSA looked at 4,500 promotions across a wide range of media and used a range of regulatory tools to identify and tackle problems.

It pursued more than 820 cases directly with firms where promotions fell below regulatory requirements, while others were taken forward as part of thematic work.

It visited 55 firms to assess their systems and controls, intervened directly with firms to change or withdraw promotions and where appropriate, initiated enforcement action.

Vernon Everitt, retail themes director at the FSA, says: “We continue to see variations in standards across different sectors, but overall we have seen improvement over the last two years.

“The marked reduction in advertisements presenting a high risk to consumers is particularly encouraging.

“But we must see further progress. Responsibility for ensuring that customers are given clear and straightforward descriptions of financial products and services lies squarely with the senior management of the firms selling them.

“So while our shift away from detailed rules towards a more principles-based approach will allow firms the freedom they need to market effectively, senior management also needs to put in place the right checks and balances to ensure that customers are being treated fairly.”

“We will continue to be proactive in areas presenting a material risk to customers and in raising standards more generally. And, of course, we will work constructively with the industry to deliver the further improvements that are needed.”