For a number of years, the FCA has been communicating with Firms and Consultants over the “fair, clear, and not mis-leading” rules surrounding Financial Promotions. Whilst in the main, the over-arching Principals and Rules surrounding this haven’t changed, what has is the media or medium used to transmit
At the beginning of the new millennium the FSA told the Industry that (for example) a TWEET wouldn’t be a realistic way of producing a Financial Promotion, as there is insufficient text characters to make the “message” balanced, fair, clear, and not mis-leading. However, no sooner had the FSA caught up with Twitter, the use of Social Media had moved on.
Many Firms had (or still have) a blanket ban on staff/individuals accessing “Social Media” sites at work – but then, a lot of other Firms, which were perhaps more willing and able to embrace technology changes stole a chunk out of the larger traditional type Firms, by recognizing the competitive advantage that this medium could offer them if they were seen to be the pioneers of it, and embrace it, rather than dismiss it.
Today, Facebook alone has a Market Capitalization that is roughly the equivalent of American Express and UPS combined (approximately 200.41Bn) it is fair to say, that nobody had thought that after the dot.com boom of the late 80’s and 90’s that this type of Capital Growth could be seen again from such (at the time) a small Company.
Nevertheless, the smaller Companies who embraced the use of Social Media were seen to steal a technical advantage on the larger, and somewhat slower Companies who in the main ignore(d) Social Media.
Some of you may recall in the start-up era of the dot.com boom, any company that was seen to have a presence on the Internet attracted ridiculous (at the time) valuation, and were often the subject of many a market rumour as to a take-over target, or who was going to “tip” them. (As we touched on before this was in part what got the Daily Mirror journalists in trouble).
So we now have Banks that have a presence, we have just about every large retailer with a presence and we even have local Police Forces using Social Media to their advantage.
One way or another – Social Media is here to stay, and those of you who embrace it, adapt where necessary to it, and use it sensibly to your advantage will benefit from it.
Now, in the Financial world, we are (over in the UK) Governed by the FCA and their Rules and Regulations that surround Financial Promotions and the use of them. Currently found in COBS4, these prescriptive Rules, mean that it is pretty unlikely that (say) using Twitter for a Financial Promotion is going to be seem as “compliant” – as there are insufficient characters for the Risk Warning alone let alone a “promotion”. Though, that is not to say, that other forms of Social Media are strictly out of bounds.
Following on from the boom in the use of Social Media throughout the world the FCA recently published another Paper to offer some clarity around this subject – but sadly – some commentators feel that they still haven’t quite embraced Social Media fully and haven’t really told the Industry what it can and cannot do. There are convincing arguments on both sides of this fence as to why you could use it, and also why you shouldn’t use it. Let’s face it, with “fair, clear and not misleading” as the starting point, we can all see why they would be concerned.
That said though, that in its own right, in no way means that you CANNOT use it. You CAN, you simply need to understand HOW and WHEN and WHERE to use it.
So, as the FCA now accepts that Firms WILL use it, what the Industry is once again looking at, and testing, are the boundaries’ of such. The most recent Guidance or Consultation Paper from the FCA is concentrating around this area yet again.
The majority of Clients that I have spoken to recently have mentioned that (at the moment) the FCA’s detailed Rules in COBS4 with the ‘definition of a Financial Promotion’ being so broad that this, in its own right, is causing a clarity issue. (For Social Media).
Looking at the definition we can clearly see that the use of the words “any invitation or inducement to engage in investment activity” — are in effect meaning that that any statements and posts can be captured by the Rules even where they were purely intended to act as commentary or general awareness-raising. Effectively, any communication that might encourage someone to buy, sell or make an investment decision, or to use the firm’s services is likely to be caught by the Financial Promotion rules.
If you, as a Company utilize “Social Media”, in conjunction with Business Development, and Compliance, and understand how the Rules need to be applied – and what the “Outcome” of that Promotion is likely to mean for both the Client/consumer and yourself as a compliant company, then you will be covered. That said, as certain companies look to become more and more imaginative with the use of Financial Promotions, wording and advertisements, you DO need to be watertight with your checking procedure, your vetting procedure, your facts and figures back up procedure and your source.
The Risk Warnings that accompany your Financial Promotions need to be looked at as well. Time and again, we as a company have had to amend and delete numerous “Risk Warnings” that have gone on to Financial Promotions, simply because they are not “fit for purpose”.
What we have seen is in some cases, a set of Risk Warnings that have literally been copied and pasted from another Financial Promotion that was “signed off” by Compliance, and has never been looked at again. The problem with this being that the Risk Warning itself is not suitable as (for example) it gives reference to derivative usage – when the Financial Promotion itself has nothing to do with derivatives.
The same can be said for a lot of the other “off the shelf” Risk Warnings These do need to be individualized for each and every Financial Promotion that the Firm issues. Don’t become complacent with the fact that Compliance have written it – (therefore it HAS to be OK). It needs to be looked at as well.
So, the Financial Conduct Authority’s recent consultation paper has attempted to provide more certainty about their approach to social media. In a fairly small 15 pages, with examples, insights and thoughts into the regulator’s interpretation of the financial promotions rules in a new media context are provided. I often used to say to my then Head of Compliance that “there was no point in myself writing a Financial Promotion or using the Social Media channels at all, as everything I write, they change, amend or caveat!” (NB: This was BEFORE I was the Head of Compliance!)
It soon became abundantly clear though, that the commercial benefits of Social Media were outweighing the non-use of it, our Clients were using it, utilising it and they too wanted us to embrace it. They wanted and demanded direct access to all of the service providers and ourselves as Bankers or Stockbrokers were no different.
So, today, Social Media is an essential channel that a large number of firms use to raise their profile, demonstrate the fact that they are up-to-date, and to deliver to their Client’s what the Clients themselves want and need. Today’s and tomorrow’s Clients have grown up with Social Media, and consequently, they will expect to be able to use it accordingly.
The main objective of the detailed FCA rules located in COBS is consumer protection. The FCA wants to ensure that marketing material only ends up in the appropriate hands. However, the financial promotions rules were simply not built for social media. In addition, the definition of a financial promotion is so broad — any “invitation or inducement to engage in investment activity” — that many statements and posts can be captured by the rules even where they were intended to act as commentary or general awareness raising.
Effectively, any communication that might encourage someone either to make (or sell) an investment or to use your firm’s investment services is likely to be caught by the financial promotion rules. When a regulated company issues a Financial Promotion, or makes a reference on-line, they have to assume that that the communication(s) can be viewed by anyone. Albeit the firm had an intended target audience, online they will be unable to demonstrate that they are successfully directing it at that group only. By and large this is a consequence of the majority of social media forums being accessible by anyone, together with the fact that there is the ability for viewers to share the postings which as an (indirect) consequence could result in the messages being delivered far beyond the intended audience.
So, it is fair to say that the ONLY point in which we as a Company can exercise control of the Financial Promotion is the point at which you are authoring the contents.
The Rules contained in COBS4 are inflexible and often cause conflict between the Front Office, Business Development and Compliance once we move outside that of the “Firms Menu”.
Originally, they were in place even before the FSA, to by and large protect the unsophisticated.
Investor, and to ensure that they were not being misled either when deciding, or when about to (or not) make an investment decision or take up an investment service and they require the firm to ensure that all language is understandable, that all the facts are included and presented accurately and that any benefits are balanced
In the main part Social Media normally creates a two-way dialogue. It is not a historic factsheet or letter, as it is pretty much “real-time”. Perhaps not literally that second, but by and large real-time insofar as it has a limited shelf-life. In today’s market-place we can quite easily witness chat-rooms and alike that are having investment debates on-line, and in some cases by invite from a Firm, with a designated Individual there to answer the questions that are being posed. This level of interaction is often a genuine nightmare for compliance officers.
First, there is the burden of reviewing posts with the volume and speed necessary to create conversations. Secondly, the Firms individuals that are engaged in this type of activity need to be adequately trained to know where and when the Financial Promotion Rules apply, what they can’t type and what they can. Then add to the pot that we, as in Compliance, can’t physically “sign off” these types of promotion as “real time” needs to be given cognisance.
Now as we have known for quite some time, the FCA expects all financial promotions to be what is called “stand-alone compliant”. Any financial promotion, (which is defined broadly), must meet all of the appropriate rules. The stand-alone compliance rule is incredibly challenging in restricted spaces. This is one of the reasons why Twitter (for example) is not necessarily seen as “compliant” as you can’t get the words in for a
Recently though, there has been some mileage in this area as we can see in this communication from the FCA. What we are witnessing now is the FCA’s guidance partially addressing this challenge by suggesting that firms can identify a promotion on Twitter through the use of the phrase #ad.
Nevertheless, in stereo-typical Risk Awareness Compliance Department views, many are of the opinion that both the #Tweet containing the link, and the landing page which contains the risk information should be seen as one promotion. This would enable the standalone compliance burden to be shared. Although the #ad development shows some considerable movement from the FCA, some have questioned whether this approach goes far enough in a climate where social media is the norm.
In the main part the FCA’s approach has always been that you as a Firm cannot rely on future documents that will contain details of risks and other crucial information at a later stage in the contractual process. Therefore, each and every financial promotion must contain everything required to be compliant. (Hence the tem “stand alone compliant”).
Now, with that I mind, Twitter is a good example of where this rule can be challenging, and that is why the Regulator has in the past time and again told us that you should not be using Twitter for these purposes – (due to the balance and tweets being limited to 140 characters).
So, as the financial promotions rules are media neutral which means that firms have to set out sufficient risk warnings to balance the benefits described. With restricted space and ‘posting culture’ this can be challenging. And the use of the #Tweet is an interesting development.
As we know – that once the Fin Prom or information is posted into the public domain it can be shared, liked and re-tweeted or re-posted by other users, with employees and clients doing this, creating a headache for many an overworked Compliance Officer!
That said, this recent CP has provided some additional information in this area. Compliance Officers can breathe a sigh of relief now as it goes on to explain that… ‘The only post a firm is responsible for is the one it has originally sent. If that original post is retweeted or shared onwards the firm cannot be held responsible for this’. However – remember that if you as a Firm re-tweet somebody else’s post, YOU take responsibility for the content of the re-tweet. And the issue that this brings is one that Compliance may want to take up with you…
The sign-off of re-posting and sharing may not have been taken into account previously by compliance officers.
I don’t think for one minute that when the finalised guidance is issued Financial Promotions will be less risky for certain Firms, but it will certainly go some way as to giving Finalised Guidance on what a lot of the Industry has been asking for.
If I were to give a negative though – for an area that the Regulator has previously spent many an hour and paper on explaining the rights, the wrongs, the good the bad and the ugly on, the fact that this is only 15 pages, does leave me wondering if all areas have been covered? It is likely that a number of Firms will continue to have questions unless it gives enough detail of how the ‘spirit’ of the financial promotions rules should be interpreted.
Firms interested in giving their feedback on the guidance consultation, have until the 6th November to submit their response to the FCA.
(Compliance CRG have been retained by several of its Clients to offer a water-tight Policy for this very subject, and has a comprehensive guide and Policy surrounding Financial Promotions in the Retail and Wholesale environments that embrace Social Media).