As with our previous Consumer Duty insights, this one will link to the new rules within existing regulatory activity – ‘Financial Promotions & Marketing’ (aka – ‘Fin. Prom’ - FCA Link). The Duty has not fundamentally changed this aspect of the financial service industry’s existing requirements; these being at a high level, to ‘be clear, to be fair and not to be misleading’. However, the FCA has looked to raise the bar with the Duty in this space.
Two aspects of the Duty that focus on Fin. Prom starts at the Duty’s four outcomes (FCA Link section 1.15), in particular ‘Consumer Understanding’ and Consumer Support’ which are very much focused on not what the firm is trying to say, but what the customer actually receives and digests from the communication. The second is the cross-cutting rules (FCA Link section 1.15), which all focus on driving the right consumer engagement to produce good outcomes that positively impact on consumers financial lives.
So what should firms be doing to raise the bar and ensure that what they need to be saying about their products and services, is actually what they are saying about them, and that it is landing as intended.
Firstly, remember that Fin. Prom, covers content a firm publishes across its full multi-channel offering, from underground adverts, posters, and direct mailing campaigns, to web content, or pop-ups and SMS services. They can be everywhere and seen by everyone. That also includes the Regulator’s focused teams, along with the target figure of 5,000 FCA employees (FCA Annual plan - Link), many of whom are consumers of the products advertised.
Secondly, how firms should be managing the process of Fin. Prom. This includes testing, both internally with the 1st line (Business Lines & their Regulatory Risk Advisers) and 2nd line (Compliance/Legal etc.) of defence in the standard operating processes, to ensure the content is created and tested for compliance before going out. Also, there is external consumer testing of groups and impact surveys, to better understand how promotions have landed with the target market (and non-target market for that matter).
Monitoring and testing controls should exist for Fin. Prom, to maintain the standard of creation, required to meet the existing regulatory and new Consumer Duty requirements. So how far do you look back on the campaigns, marketing content etc. to gain insight and ascertain an understanding of its effectiveness and compliance, is it monthly, quarterly, annually or all of them? In truth, a mix of all timelines across the relevant assets is most likely to provide the riches insights.
Thirdly, and arguably a firm's greatest asset, is its people! How firms equip those doing the various tasks in the Fin.Prom creation chain, to achieve what is expected, is key. There should be training from core all-staff modules, to the more advanced, as the need and/or responsibility to create, review and approve material content increases toward final issuance. Consider; does this training provides not only insight into the rules around content creation, prominence and factuality, but also, around the firm's Governance requirements. How often is this training given, monitored or refreshed, and how has it been enhanced to encompass the Duty?
We have all seen examples of where firms do not have the appropriate Governance, Training, Oversight and Monitoring in place regarding Fin. Prom, with the FCA making it very easy for anyone to report those that fail to meet the expected standard, via its site at Misleading financial promotions | FCA
The extent of the problem of poor Fin. Prom is highlighted in the FCA’s latest article Financial watchdog stops thousands of misleading ads and promotions | FCA, where is noted there has been a 17% year on year increase in poor Fin. Prom being withdrawn or changed in 2023, with over 10,000 Fin. Proms requiring FCA intervention.
It should not be forgotten that the penalties and consequences of not having appropriate Financial Promotion controls in place or executing them, are not restricted to the Firm; as was found to be the case with a former Director at London Capital & Finance plc (LCF) who was responsible for their Compliance, signed off hundreds of financial promotions, which contributed to thousands of investors being misled, was personally fined £31,000. (Link: FCA News Report 13/02/24).
Whilst the FCA continues to review the industry implementation of CD, recent FCA articles suggest that Fin. Prom, and the way in which it is being utilised, implemented and the impacts it has on consumers, remains at the forefront of current thinking from the Regulator.
This additional focus can be seen within the FCA PS23/13 (Link: PS23/13: Introducing a gateway for firms who approve financial promotions (fca.org.uk)), which sets out the new regime that will affect authorised persons who approve, or intend to approve, financial promotions for unauthorised persons.
Our specialist Consumer Duty team at Delta Capita is well placed to benefit your business strategy and harness your growth potential, having partnered with a number of clients through both phases of CD implementation. The team is highly skilled at supporting clients, in gaining a clearer understanding of how they can master assimilation of the Duty and drive good customer outcomes through progressive Fin. Prom GRC and tech-led consumer outreach solutions to facilitate effective controlled campaigns with 360 degree impact understanding.
To find out about how we can support you, contact us and speak directly to one of our experts.
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