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Screenshot of a breaking news alert e-mail from Q2 2017
Since 1 April, the FCA has reviewed over 1,500 financial promotions for consumer credit products. The rules state that all promotions must be clear, fair and not misleading for consumers.
In the same period, the FCA has opened 227 cases about non-compliant promotions for products which were offered by many firms under its jurisdiction. Many of these cases did not relate to FX firms, however the FCA’s concentration on advertising content and methodology is relevant to the FX industry as it is a largely online business which relies on media advertising for client acquisition.
A quarter of the aforementioned cases relate to advertisements for high-cost short-term credit, with many not prominently displaying a risk warning or representative APR. 80% of consumer credit cases to date relate to digital media, such as websites, emails and text messages.
The British regulatory authority has launched a consultation into the ways in which social media is used in order to promote financial products, conducting a study on the matter recently which has concluded that over the last 18 months, the FCA has become fully aware of the increase in firms’ use of digital media for customer communications and specifically for financial promotions.
More particularly, firms are using, or wanting to use social media for their communications with customers. However, the FCA has noted that many firms perceive difficulties in complying with some of the FCA rules, particularly with the financial promotion rule for character-limited forms of social media such as Twitter. The FCA has therefore published a consultation which sets out its approach and seeks feedback.
In other jurisdictions, there have been high-profile cases against providers of managed FX schemes and dubious software which has been sold with promises of extremely high returns without any indication of past performance, as in the case of OakFX in New Zealand last year, which resulted in warnings by the New Zealand Financial Markets Authority, whose attention was drawn to the product as a result of the promised 50 to 60% potential gains and outlandish subscription cost of $25,700.
OakFX’s orchestrator, Phoenix Forex’s Mark Brewer, avoided home detention subsequent to the company’s liquidation in October last year, but was prohibited from engaging in the direct management of any company.
Russia is another nation in which the authorities have shown a concern over ensuring that products are correctly advertised. LeapRate reported in March this year that the Central Bank’s First Deputy Governor Serguey Shvetsov has been, along with the Russian government, preparing substantial restrictions to advertising practices that aim to introduce some scrutiny for companies who falsely advertise that easy profits can be gained from trading on the forex market.
Mr. Shvetsov was very open and vocal in explaining that companies that claim “easy-money” and “high returns” are “charlatans”.
Clive Adamson, Director of Supervision at the FCA, today made a statement regarding to the FCA’s concerns regarding advertising campaigns used by financial services firms: “It is important that all firms ensure financial promotions are fair, clear and not misleading so that customers are able to make informed decisions. We are disappointed to see standards fall short of what we expect, particularly in the consumer credit space, four months from when we took over regulation. We believe that firms in this sector can do more to ensure financial promotions meet the standards we would expect and will continue to monitor performance in this area.”
The FCA has confirmed that companies under its auspices have responded positively when contacted by the FCA and have been quick to make changes to promotions that do not meet the standards. The FCA will continue to monitor financial promotions and take action where required to drive up standards, and has stated that it will continue to on complaints received from the public, the Advertising Standards Authority and other organisations.