All financial firms communicating with clients must ensure they do so in a fair, clear and not misleading way if the Financial Services Authority's proposals on financial promotions and communications are adopted.
In a separate consultation paper CP06/20 on how the Markets in Financial Instruments Directive (MiFID) and the new conduct of business (NEWCOB) sourcebook will affect financial promotions and other communications, the FSA says all information must be “fair, clear and not misleading”.
‘All information’ includes financial promotions, product disclosure documentation, communications during sales advice, telephone conversations and any casual reference by a member of branch staff.
Furthermore, it will apply to all firms required to follow current COB requirements - whether MiFID scope or non-scope - and the provision firms must take ‘reasonable steps’ to communicate in a fair, clear and not misleading way will be dropped.
It will apply to communications for retail and professional clients, whereas information for eligible counterparties will only need to be ‘not misleading’.
With regards to more specific rules on communications and financial promotions, some of the provisions in NEWCOB will apply to scope and non-scope business and some will only apply to scope business:
- The rules which require communications from firms to include the firm’s name and be accurate, sufficient and presented in a way which is likely to be understood by the average member of the group will apply to all firms;
- The requirement all information containing comparisons must be ‘meaningful and presented in a fair and balanced way’ will apply to all firms;
- The rule that firms must include details on the ‘sources of information’ and ‘key facts and assumptions used to make the comparison’ in all communications will only apply to MiFID-scope firms because the FSA does not currently require this; and
- Past performance proposals, which state past performance must not be the most prominent feature of a communication, will apply to all scope non-marketing communications and to all financial promotions of designated investments and structured deposits.
The FSA says will no longer prescribe specific disclosures or actions and firms will therefore need to decide for themselves what information is relevant in their financial promotions.
If a financial promotion contains advice, the revised suitability rules in NEWCOB 10 will be relevant and, if it refers to a packaged product, NEWCOB 7 may also be relevant.
The FSA is also revising rules for direct offer promotions by proposing disclosure requirements in the future will not be triggered by whether or not a promotion is a direct offer.
Instead, for non-advised sales disclosure may be supplied at any stage in the sales process so long as it is provided in good time before a transaction resulting from the promotion.
The FSA says a consequence of the move away from product-specific rules and the timing of disclosure rules means direct offer financial promotions will not be a main focus, but just one step in the process culminating in a sale.
It is therefore proposing to remove the ‘direct offer financial promotion’ term.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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