Aspects of Advertising, Disclosures, Witches and Decisions
As I’ve remarked before, the General Code of Conduct has gained some weight over the years and one of the areas of expansion in this COVID 19 year is section 14, dealing with advertising. Previously, this section in the Code had 3 subsections and occupied a page. After its makeover section 14 now runs to 15 subsections and covers the best part of 6 pages – a clear indication that something substantial is going on.
One of the core intentions of the Code of Conduct has always been that FSPs and their representatives must be induced to behave in such a way that clients will be able to make informed decisions about financial products and services. In order to make a properly informed decision, a person needs to have:
- all the necessary information for the decision;
- presented in a form and manner that that person can understand.
- at the time, the decision is being made.
This is why plain language disclosures are so important. The new advertising section expands upon the disclosures that advertisements must make, and some of these aspects have now been included in the disclosures that must be made when financial services are in progress. Legislation isn’t there to protect consumers against their own recklessness, greed or stupidity. However, FSPs and Representatives must not lead clients into poor decisions by withholding information, misrepresenting information or, quite simply, lying. If the witches in Shakespeare’s great play, Macbeth, had been bound by a similar Code of Conduct then they would have had to disclose the limitations and conditions of their predictions and Macbeth would probably have ignored them, not murdered the King and gone on to lead a long life. This would not have given us much of a play, of course.
The pre-emptive and intrusive approach of financial conduct regulation suggests that the Authority increasingly expects financial services providers to anticipate what consumers might think or do and to take steps to ensure that their representations and advertising do not mislead, create unrealistic expectations, lead to poor decisions and poor outcomes. Pretty much Macbeth in a nutshell, for those of you who remember your high school Shakespeare.
An advertisement is broadly defined: any communication published through any medium, with the intention of creating public interest in the FSP’s business, services, or products. When it was suggested to the Authority that this seemed excessive and would include branded stationery, promotional gifts and charitable sponsorships, the Authority agreed and said that all such brand awareness advertising had to be included. The Authority did say, though, that some of the detailed requirements in the new section 14 would not apply where there was no reference to any actual product or service. It will be interesting to see how product launches are affected.
From the new year, a financial services provider must be able to document the process by which any advertisement is approved by a key person or suitably senior person. That means that the advertisement must be checked to ensure that it complies with section 14 of the Code – and if possible, it must be objectively reviewed by someone other than the person who wrote it.
If an advertisement is produced or published by a representative, then the FSP must have processes in place to ensure that the advertisement complies with section 14.
Combining these aspects, this means that FSPs must be mindful of any use representatives may be making of social media in their prospecting and marketing activities, as these would certainly fall within the framework of advertising, even though the representative may not have considered them in that light. Between now and January 2021, FSPs and Key Individuals should probably review and refresh their guidelines for advertising and promotions and make sure that individual representatives are well aware of what is required: we all know that the lines between private and business communication have become increasingly blurred. An additional, new requirement is that records must be kept of all advertisements – for at least five years after publication.
Throughout these changes to the Code we see the incorporation of the Treating Customers Fairly principles, which place ever more responsibility for the outcome of financial decisions onto the providers and suppliers.