Magazine article Marketing

News Analysis: Financial Constraints Relaxed

Magazine article Marketing

News Analysis: Financial Constraints Relaxed

Article excerpt

An overhaul of financial advertising regulations will give marketers greater flexibility. Joanna Bowery reports.

Financial advertising has long been subject to complex regulations. Following years of criticism, the Financial Services Authority (FSA) last week announced proposals to halve the number of rules covering financial promotions.

Why is the FSA proposing regulation changes?

The FSA's aim is to 'promote efficient, orderly and fair markets and to help consumers achieve a fair deal'. Recently, this has involved the FSA working to put a commitment to 'treat customers fairly' at the heart of all businesses.

The FSA realised that marketers 'box ticking' against its prescriptive, formal rules might hinder them from fulfilling such a requirement. It now recognises that an ad is only the first point of contact that a consumer has with a brand; cautionary information can now be communicated once the consumer has expressed initial interest.

This realisation coincides with the European Union's introduction of the Markets in Financial Instruments Directive (MiFID), which aims to create a single financial-services market across member states.

To ensure UK rules comply with MiFID and to encourage firms to take more responsibility in treating customers fairly, the FSA decided to revamp its Conduct of Business rulebook, including rules on financial promotion, to make it more principles-based.

What are the most significant revisions?

The main rules that will disappear are product-specific, which mandate the inclusion of specified information in promotions, such as particular risk warnings, tax disclosures and information about products. In short, the wording of clauses that must be displayed on ads will not have to be so specific.

The FSA says 'firms will need to decide for themselves what information is relevant' by adhering to the principle that promotions must be 'clear, fair and not misleading'.

However, this does not mean that all specific rules will disappear, nor that the rules will be less strict. The rules will remain when firms want to compare their product or service with another in ads.

The rules governing past performance of investment products will be relaxed, to conform with MiFID rules. Ads that focus on past performance will still be banned, while those that mention it will still have to warn that the data refers to the past, and is not a reliable indicator of future results. However, there will no longer be a presentation standard that requires information to be shown in table form using a percentage format. Also, there is greater flexibility with regard to the wording and prominence of the warning.

Will financial-services marketers be given more freedom?

The FSA hopes the principles-based approach will give firms more flexibility in planning their marketing. 'Providing flexibility rather than prescribing detailed processes should enable firms to compete and innovate more effectively in product design, the quality of customer service, and in providing value for money,' says FSA retail markets managing director Clive Briault.

How have marketers reacted to the changes?

The Association of British Insurers has welcomed the FSA's commitment to less burdensome rules because it believes they will help the industry to encourage consumers to save more. …

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