Financial Promotions: how to avoid the pitfalls and potholes of FCA regulation
As you will by now be more than aware, the Financial Conduct Authority (FCA) has taken over regulation of the consumer credit market from the Office of Fair Trading with effect from the 1st of April 2014. I wrote an article recently on the process of submitting an application to the FCA and the importance of getting it right first time, as well as the activities that were covered by the regulation and an overview of the types of changes you might expect.
We are a little farther down the regulatory road now and I wanted to look in a bit more detail at the practicalities and realities of life under the FCA. I presume that most consumer credit specialists will have had a thorough read of the regulator’s handbook – the memorably named ‘CONC’ – and noted the business areas upon which the FCA are going to particularly focus. However, at SimplyBiz we know from experience that FCA guidance can be difficult for advisers to navigate and I wanted to take this opportunity to discuss the key areas in more detail.
The business areas covered in the CONC handbook are:
- CONC 1 : Application and purpose and guidance on financial difficulties
- CONC 2 : Conduct of business standards: general
- CONC 3: Financial promotions and communications with customers
- CONC 4 : Pre-contractual requirements
- CONC 5 : Responsible lending
- CONC 6 : Post contractual requirements
- CONC 7 : Arrears, default and recovery (including repossessions)
- CONC 8 : Debt advice
- CONC 9 : Credit reference agencies
- CONC 10: Prudential rules for debt management firms
- CONC 11: Cancellation
- CONC 12: Requirements for firms with interim permission for credit-related regulated activities
- CONC 13: Guidance on the duty to give information under sections 77, 78 and 79 of the Consumer Credit Act 1974
- CONC 14: Requirement in relation to agents
- CONC 15: Second charge lending
The section which I believe will need most adjustment from consumer credit specialists acclimatising to the new regulatory environment is CONC 3, financial promotions and communications. I spoke in my previous article about the FCA’s regulatory framework being built around the objective of benefitting the consumer, and the financial promotions and communications guidance follows this rule. The buzzwords to bear in mind when preparing any consumer facing material – be it to attract new clients or keep in touch with your existing customer base – are clear, fair and not misleading. Although this sounds both obvious – surely nobody would set out to provide information in a way which was unclear, unfair and totally misleading! – and vague, the FCA do also provide a very detailed breakdown of what you need to include and avoid.
It goes without saying that you need to consult the CONC handbook as a whole to ensure your promotional material and communications are in line with FCA guidance, but some of the ‘headlines’ are:
- Always use language which is plain and intelligible. It can be tempting with financial promotions to sell the sizzle, rather than the sausage, but bear in mind that it needs to be absolutely clear what you are saying. This also applies to the aesthetics of your material; it needs to be instantly easy to read.
- The provenance of the communication needs to be completely transparent. If it is promoting any type of credit broking, the name of the lender also needs to be given. This point is also affected by other areas of regulation so, again, please consult the CONC handbook in its entirety.
- It shouldn’t appear that services or credit are available to all consumers, regardless of circumstances or credit history.
- When promoting the benefits of a service or product, the corresponding risks also need to be clearly stated. These warnings cannot be disguised, diminished or obscured.
- As your firm is now regulated by the FCA, if you include a regulatory statement declaring this within the promotion you will also need to state if you are referring to any services or products which are non-regulated, and clearly differentiate between the two.
- If your communication includes any straight comparison with a competitor’s services or products, you need to ensure it is a like for like comparison, that it’s meaningful and is presented in a balanced manner.
- It goes without saying really, but if you include a premium rate telephone number, you need to clearly state the costs, potential duration of a call and the total amount they could incur.
Although the new regulation could appear quite intimidating at first glance, please remember that thousands of financial advisers have already trodden this path and had to undergo the same adjustment and learning curve. With the right backing and guidance, the process can be made a lot easier and I would suggest that you visit the Consumer Credit Centre (www.consumercreditcentre.co.uk) for up to date and relevant information.
Gary Kershaw, Compliance Director, SimplyBiz