SIFA 9.3 Financial Promotions

A financial promotion is an invitation or inducement to engage in investment activity and so is far wider than just investment advertisements. Section 21(1) of FSMA 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 can be either solicited or unsolicited and may be communicated through any form of media - such as phone conversations, newspaper advertisements, websites, group presentations and mail shots. 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 through correspondence, email, website material, and radio and television.

The general rules on the content and form of both real and non-real time promotions are given in COB 3.8. There are major differences between the financial promotion requirements for investment business and mortgage or general insurance business. Firms that undertake mortgage or general insurance intermediation should consult MCOB 3 and ICOB 3 and the relevant guides for small firms.

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 (see COB 3.8.22 R).

Your firm must not make an unsolicited real time financial promotion (see COB 3.10.3 R) unless:

• the recipient has an established customer relationship with you and expects to receive such promotions; or
• the financial promotion relates to a generally marketable packaged product which does not involve higher volatility funds; or
• the financial promotion relates to a controlled activity carried out by an authorised person involving readily realisable securities and generally marketable non-geared packaged products only.

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

Firms may communicate non-real time financial promotions produced by other firms (e.g. product providers) in the circumstances set out in COB 3.6.5 R. However you should remember that if you pass on to your client someone else's promotional material such as product provider literature, you are responsible for taking reasonable care to ensure that the product provider has confirmed compliance and that the literature has not ceased to be clear, fair and not misleading.

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 and 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.

You should bear in mind that an unsolicited letter to clients which contains direct offer marketing material will (in the absence of an exemption) be a financial promotion if any reference is made to the benefits or risks of the products. So these will need to be approved before issue.

The information that a direct offer financial promotion should contain is set out in COB 3.9.6 R. Among other things, a direct offer financial promotion must contain the information set out in COB Appendix 1.

Following implementation of the Distance Marketing Directive in October 2004, all direct offers must be in a durable medium. This can be paper, or another medium that enables the person receiving the information to store it so that it can be accessed in the future and remains unchanged (COB 3.9.6 R (1)). Retail customers must also be provided with all contractual terms on which your service will be provided in a durable medium before the customer is bound by the offer, unless an exemption applies.

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

A summary of record-keeping requirements is set out in schedule 1 to each sourcebook (COB, MCOB and ICOB). The summaries are intended as guides and are not a complete statement of our requirements - you will also need to refer to the rules in the body of the sourcebook. These are minimum requirements and you may decide to keep material for longer. Remember that other organisations you deal with e.g. PII insurers and auditors may have different record-keeping requirements.