Friday, September 19, 2008

Financial Advertising - A Regulator's View Point

Excerpts from

Keynote speech by Nausicaa Delfas, Head of TCF Strategy, Financial Promotions and Unfair Terms
Infoline Conference "Financial Promotion of Investment Products after MiFID"
12 December 2006

To help achieve a fair deal for consumers, we find it helpful to think in terms of the four pillars essential to delivering a more effective and efficient market in retail financial services:

helping consumers to become more capable and confident in the decisions they are required to make;
ensuring that consumers receive, and use, clear, simple and understandable information;
ensuring that firms are soundly managed, well-capitalised and that they treat their customers fairly; and
delivering a regulatory regime that is proportionate and risk-based.
Our approach to financial advertising is relevant to the delivery of all these pillars. However, the key requirement is one of the eleven principles which underpin our whole regulatory approach: Principle 7 states: ‘a firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading’.

So why do we place so much store on firms getting financial advertising right? Clearly, advertising plays a highly influential role in how consumers make decisions – and I am sure you can appreciate that the consequences of misleading advertising can be painful for all concerned. Poor promotions can lead consumers to buy the wrong product, ultimately with unhappy outcomes for them and for firms.

it is so important for adverts to be straightforward in communicating the nature of the product or service and the risks involved. If advertisements fail to give a clear and straightforward description of the nature of the product, how then can we expect consumers to make the right choices, and looking forward, to progress in taking greater personal responsibility for their financial decisions?

Over the last two years, we have investigated over 930 cases of potentially misleading advertising. Although we did not need to take action in all of these, in 60% of them adverts were swiftly amended or withdrawn altogether. Moreover, where consumers have been misled and suffered loss, firms often offer them compensation. This means that we can deliver very rapid consumer protection without needing to resort to formal enforcement action – the fact is that anything approaching a 'public censure' has to go through the formal disciplinary process which could significantly delay delivering protection. What matters here is acting fast.

In the vast majority of cases, formal enforcement action would be disproportionate. But in the more serious cases we do, of course, take such action. In the last two years, we have done so in respect of twelve firms, levying just over £1.5 million in fines.


are you clear that you have considered the needs of your target audience?
are you clear that you provide a fair and adequate description of the risks and drawbacks of the product?
are you clear that you have described the product properly? In this case, a whole of life insurance policy was described as a funeral plan in one promotion, when it was no such thing.

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