Regulator plans ban on what it sees as misuse of past performance figures in advertisements
Fund past performance can no longer be the predominant message in any advertisement once FSA proposals are passed into regulation, something the regulator aims to do by September 2002.
If past performance is mentioned, the FSA's warning that it is no guide to future performance must be included in the main text of the advert.
While the FSA would like to make its proposed changes to past performance and advertising rules in September, it is planning to give firms a three-month transitional period before bringing them into force in December 2002.
The changes will include strengthening the warning in advertisements that past performance will not necessarily be repeated. In a second stage, the FSA consultation paper is proposing to do this by either requiring a warning to be included in the main text of an ad using stronger wording than at present or prescribing the content of the past performance warning itself.
New guidance is to be given for use when past performance information is presented over a number of pages, such as on the internet or via a brochure. In these cases, the warning must be presented on each affected page.
Brochure use of past performance must also include the disclaimer that the data may be out of date, adding the caveat that the FSA considers information to be out of date if it relates to a period ending more than three months previously. Firms should also make it clear that more relevant fund data can be found elsewhere and show where this can be found.
The FSA is proposing that the use of hypothetical past performance should also be significantly restricted.
It suggested this can be achieved by giving guidance on acceptable and unacceptable practices.
Firms will be expected to demonstrate how their hypothetical model is not misleading.
In addition to these proposals, the FSA aims to improve consumer understanding of advertising standards by publishing regular bulletins on its monitoring work. It will also set up a hotline for consumers to report ads they believe to be misleading.
The regulator is reminding firms they are responsible for ensuring advertisements are clear, fair and not misleading and that they must present a balanced picture of a product.
Vitally, the key risks of a product should be set out alongside its benefits, rather than buried in the small print.
In Consultation Paper 132, the FSA has suggested that ads for bond funds that include information on yields should contain both the income and the redemption yield.
The issue of presenting bond yields in this manner was first broached by the IMA, then Autif, in the summer of 2000. However, at that time, the trade body could only get the FSA to endorse the standard.
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