Treating Customers Fairly

Fact sheet 5: Advertising

The Financial Services Authority (FSA) have identified the importance of their principle that a firm must pay due regard to the interests of its customers and treat them fairly. This requirement has been underlined by reference to other FSA Principles, the FSA Business Plans, speeches and other output.

FSA Supervision is also focusing on Treating Customers Fairly (TCF) when examining the way in which firms conduct their business.

The advertising of a firm’s products and services,referred to under the heading of Financial Promotions in the FSA Handbook, is the mechanism by which consumers are made aware of the firm’s offerings and is frequently the initial point of contact with the consumer. Even when this is not the case material covered by the financial promotions requirements will be provided to the client at a very early point in the relationship and will always form an important element in the client’s understanding of product.

It is a requirement that all advertising must be fair clear and not misleading and the FSA rules set out many specific requirements that must all be complied with.

Traditionally it was acceptable to use ‘small print’ to place caveats on claims made in an advert but this is now seen as inappropriate, and the requirement is now that every element of the advert should be capable of being taken ‘out of context’, and still be a true and fair statement. This requirement should be considered particularly in regard to headline claims, and the font sizes selected for use on any risk warnings should ensure that in the context of the overall design the warning retains adequate prominence. At all times the content of the advertisement must be sufficient to enable the customer to achieve a proper understanding of the offer.

Firms must also be aware that the FSA Financial Promotion rules are not the only requirements that must be considered when determining the content of adverts.

Dependent upon the content and purpose of thepromotion other requirements may be established. Examples of these include:

• The companies Act
• Code of advertising and sales promotion
• Code of banking practice
• Consumer credit act
• Data protection act
• OFTEL
• Lotteries and Amusements Act.

Attention should also be focused on the requirements of the CII Code of Ethics and Conduct to ensure that the interests of customers are respected.

To ensure that all of these elements are properly complied with firms should ensure that all promotional material is subject to a comprehensive sign-off process. It is vital that those carrying out these checks have the correct knowledge and skill levels. The firm must also keep records to evidence the sign-off process and to identify the use and distribution of all items.

Good practice might suggest that some testing should be undertaken to look into the reaction of consumers to the material particularly having regard to the levels of comprehension, interpretation and understanding that are achieved. Evidence that all elements of the promotion are understood will not only ensure that the maximum business effect is achieved, but will also evidence that the firm is taking all reasonable steps to ensure that their promotions take into account the requirements of TCF.

Advertising is one of the most public of activities and can be readily monitored by both competitors and regulators. The FSA have a specialist team who monitor all relevant media to identify promotions which fail in any way to meet their requirements.