SIFA 9.3 Financial Promotion

A financial promotion may be described as an invitation or inducement to engage in investment activity. Section 21(1) of the Act prohibits financial promotions unless communicated by an authorised person, or an authorised person has approved the content of the promotion, or an exemption applies.

A primary intention of the rules and guidance relating to financial promotions is to ensure firms pay due regard to the interests of their customers and communicate information in a manner which is clear, fair and not misleading (see COB 3.8.4 R).

Financial promotions are far wider than just investment advertisements. They can be either solicited or unsolicited and may be through any form of media, such as phone conversations, newspaper advertisements, group presentations and mailshots. For the purposes of COB 3, financial promotions are classed as either real time or non-real time promotions. Real time promotions are those that are communicated in the course of a meeting, telephone conversation, or other interactive dialogue. Non-real time promotions include those made via correspondence, email, website material, and radio and television.

By their very nature it is not possible for a firm to approve real time financial promotions, and our rules do not allow this (see COB 3.12.2 R). Instead, the rules and guidance require that firms make clear their identity and the purpose of the promotion and do not communicate at an unsociable hour (unless previously agreed with the customer). Above all, promotions should be clear, fair and not misleading.

Your firm must not make an unsolicited real time financial promotion unless the recipient has an established customer relationship with you and expects to receive such promotions (see COB 3.10.3 R).

Before you communicate to a customer or approve a non-real time financial promotion you must arrange for confirmation by an individual in your firm with appropriate expertise that the financial promotion complies with the rules in COB Chapter 3 (see COB 3.6). Firms are also expected to ensure routinely that their financial promotions continue to comply with the rules.

COB 3.8 contains detailed rules and guidance concerning the form and content of financial promotions. For example, all non-real time financial promotions should contain the name and address (or contact point) of the firm or its appointed representative. Any comparisons should be objective, balanced and clear. If a particular investment or service is promoted then a fair and adequate description of the nature of the investment, the commitment required, and the risks involved must be given. As with real time promotions, however, the overriding principle is that promotions be clear, fair and not misleading.

A direct offer financial promotion is a non-real time financial promotion that contains an offer for the consumer to enter into an investment agreement or, specifies the manner of response or includes a response form (such as a tear-off slip). The rules require such a promotion to contain enough information to enable the customer to make an informed assessment of the investment or service to which it relates.

1. (1)

   The Table in COB 3.9.3 G is intended to help firms locate the sections of COB 3.9 that are applicable to them when they communicate or approve a direct offer financial promotion.

2. (2)

   The Table in COB 3.9.7A R lists the information that a direct offer financial promotion should contain.

Direct offer financial promotions for packaged products must contain the information required by COB 6.5 (Content of key features).

Direct offers for investments whose value (or income) may fluctuate must make this clear in terms that are likely to be understood by the kind of customer to whom the promotion is communicated (COB 3.9.15 R).

A firm must make an adequate record of each non-real time financial promotion that it has confirmed as complying with the rules of COB 3. In addition to a copy of the actual promotional material, firms should record the name of the individual who approved the promotion, the date of approval and medium it was authorised for. (See COB 3.7.2 G and COB 3.7.3 G for further guidance).

The following information may be helpful:

1. (1)

   Guidance on the restrictions on making financial promotions under Section 21 of the Act is given in AUTH App 1 (Financial promotion and related activities). This also explains the main exemptions.

2. (2)

   The Table at COB 3.2.5 R lists the exemptions to the financial promotion rules in the Handbook. Additionally, some of the main exemptions contained in the Financial Promotion Order are summarised in COB 3 Annex 1.