Advertising financial products and services online – rules and risks

November 13, 2009

Advertising financial services and investments is fraught with regulation, and it is all too easy to fall foul of the rules, especially online.

The general rule is that an advert must be balanced – avoiding misleading headlines and small print, giving sufficient prominence to key risks. In other words, it must give a fair and realistic impression of the product or service.

Advertising for certain types of investments is off-limits altogether, unless you are authorised by the Financial Services Authority (FSA) or you have had your advert approved by an authorised person. It is a criminal offence to publish an unauthorised invitation or inducement to engage in investment activity.

Who regulates what?

• The Office of Fair Trading (OFT) regulates consumer credit adverts issued by, or for, businesses that lend money or offer other forms of credit, and businesses that act as credit brokers;

• The FSA regulates advertising for regulated financial services, including pensions, savings and investments, insurance and mortgages; and

• The Advertising Standards Authority (ASA) tackles “non technical” areas of advertising such as taste, decency and social responsibility.

What about online advertising?

There has been a steady increase in the number of financial products and services advertised online as more providers of these products and services seek to tap into this potentially lucrative advertising space. All 3 organisations regulate online advertising.

Online advertising generally tends to be brief and snappy – advertisements appear and disappear quickly with minimal information (and often little cost to the advertiser). Undoubtedly, the brevity and volume of such advertising makes it particularly challenging to comply with all the various rules.

What are the rules?

Credit adverts: 

Broadly, you must follow 3 basic principles:

1. no false or misleading information;

2. strive for clarity and language which is not difficult to understand; and

3. important information, such as the typical APR, should be easily identifiable and located with other important information.

It is worth noting that in the case of a brokerage advert, not only the broker is covered by these restrictions, but also the lender identified in the advert.
Financial promotions and FSA compliance

Financial promotions are defined as ‘invitations or inducements to engage in investment activity’, which covers a variety of activities involving deposits, insurance, investments, funeral plan contracts and certain types of credit.

Advertisers must tread extremely carefully in this area because it is a criminal offence to make an unauthorised financial promotion. Any such communication from an authorised firm in respect of this must be clear, fair and not misleading. The requirements in this area are detailed and specific advice should be sought in cases of doubt.    

Practical tips

These are some of the typical scenarios in which adverts fall foul of the authorities:

• creating unrealistic expectations; 

• showing overly prominent or cherry picked data on past performance; or

• making savings claims which are misleading for the target market.

In practical terms, where adverts use superlatives such as ‘biggest’ or ‘cheapest’, such claims should be substantiated. In order to be fair, clear and not misleading the landing page should display the evidence of such substantiation in a prominent manner.

If you are in any doubt about whether you might be making a financial promotion, be sure to seek appropriate advice.

Consequences of getting it wrong

The regulatory authorities have the power to prosecute in the courts, which could lead to a fine or imprisonment, and the ability to withhold various licences. Consequently, advertisers and their clients should pay close attention to these restrictions, adhere to the general principles outlined above and take appropriate legal advice where necessary.

Related pages:

Online regulation and terms & conditions more

Technology, Media & Digital more

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