What is a Financial Promotion in the UK?
In the UK, financial promotions are what connect financial businesses and consumers. These promotions are when encouragement is made to engage with investment activity.
It’s important that both companies and individuals understand what counts as a financial promotion, because there are a lot of rules to follow. The rules are there to protect customers (and by extension, the market), so the punishment can be severe.
Before going into what is a financial promotion, it’s important to note who can promote. You need to register with the FCA and be approved to promote—otherwise, it must be approved by an authorised third party.
What is a Financial Promotion?
When looking at what financial promotions are, you need to begin with the Financial Conduct Authority (FCA) - it is the regulating body of the UK financial sector. They define a financial promotion as an “invitation or inducement” to engage with a product or service, which is usually related to an investment. This promotion is communicated by a person “in the course of business”. Let’s break that down…
- Invitation or inducement: this means any message that encourages someone to invest. This message may be in a TV advert, a brochure, or just a LinkedIn post.
- Investment activity: this includes buying, selling or holding investments like stocks or cryptocurrency. It also includes managing investments or giving investment advice.
- Course of business: the message must be part of a business activity. It doesn't include personal comments or private statements. Business messages must follow certain standards.
Further Breaking Down the Definition
Invitation or Inducement
This can be any form of communication that might make someone want to invest. It doesn't have to be a direct offer. For example, hinting at potential profits or suggesting an investment opportunity can count. For example, a tweet saying "Our new fund is growing fast!" could be seen as an inducement. Obviously, the line is never perfectly defined, which is why it’s better to err on the side of caution and understand the spirit of the rule.
Investment Activity
This covers a wide range of financial actions. Some examples are
- Buying/selling stocks, bonds and other securities.
- Cryptoassets like NFTs and ICOs.
- Putting money into investment funds.
- Getting advice about investments.
- Having someone manage your investments for you.
Even if the activity itself isn't mentioned, promoting a product or service related to these activities can count as a financial promotion.
Course of Business
This means the promotion is part of running a business, not just a casual comment. For instance, a financial advisor telling clients about a new investment product is acting in the course of business. But if the same advisor mentions an investment to a friend at a party, it's probably not a financial promotion. This is where Tweets from personal social media accounts can blur the line, because followers may be there for the business side of things. To stay safe, always assume you’re representing your company when posting unless explicitly stated otherwise.
Types of Financial Promotions
Financial promotions come in different forms. The main types are:
Real-time vs. Non-real-time Promotions
- Real-time promotions happen during live interactions, like phone calls, livestreams, or face-to-face meetings.
- Non-real-time promotions are things like emails, websites, or printed ads.
Solicited vs. Unsolicited Promotions
- Solicited promotions are ones the customer has asked for. For example, if someone calls their bank to ask about savings accounts.
- Unsolicited promotions are ones the customer didn't request. Like a cold call offering investment opportunities or promoted (boosted) social media posts.
Each type has different rules. Real-time promotions often need more care because they can pressure people to make quick decisions. Unsolicited promotions have stricter rules to protect consumers from unwanted sales pitches.
Businesses need to know which type of promotion they're making to follow the right rules. This helps protect consumers and keeps the financial market fair.
Regulatory Framework
The FCA sets the rules for financial promotions in the UK and these rules keep the consumer and market safe and fair. Here are some of their key laws
- All financial promotions must be “fair, clear, and not misleading”.
- Promotions must give a balanced view of the investment, including the risks.
- Certain high-risk investments can't be promoted to retail consumers.
- Risk disclaimers must be clear to read.
Recent changes have tightened the rules. From January 31, 2024, the criteria for High Net Worth Individual exemptions changed
- The income threshold increased to £170,000.
- The net asset threshold rose to £430,000.
Common Examples of Financial Promotions
Unfortunately, there isn’t a single list of what is and isn’t a promotion. The reason for this, beyond there simply being too many, is that social media and Internet communications are always evolving. However, we have put together a list of examples that may help paint a picture
- TV or radio adverts for investment products.
- Billboards promoting pension services.
- Emails offering new savings accounts.
- Social media posts about cryptocurrency investments.
- Leaflets in banks about mortgages.
- Website banners for trading platforms.
- Sponsored content in newspapers about stocks.
- Text messages about personal loans.
- Pop-up ads for online trading.
These promotions can target different groups, from young adults to retirees. They might focus on short-term gains or long-term financial planning. They may be risky or risk-averse.
Some exemptions that may exclude falling under promotions may be information given by journalists, conversations between professionals within the industry, promotions to sophisticated investors, and some promotions by non-profits. However, the nuance of these cases along with the consequences of noncompliance mean that specialist advice should be sought.
Importance of Compliance
Following the rules for financial promotions is unequivocally the only way forward. Beyond your duty to protect consumers, it’s needed to avoid fines and legal trouble, as well as to build a good reputation. Trust can quickly get broken once there are legal problems and news about you being a rule-breaker.
It’s difficult to calculate just how much money can be lost through a tumbling reputation. But, we can look through the FCA’s public list of recent fines to get an idea of what’s at stake.
If you are not authorised by the FCA to promote your financial service or investment, you must use an approved entity.
Conclusion
Understanding financial promotions is the bedrock of staying competitive within this sector. Promotions have more and more scrutiny, and consumers are paying more attention to foul play. It’s impossible to follow the rules, however, when you do not understand its definitions.
This is why you should not only study what promotions you plan on doing and how they align but also seek advice if you’re in a nuanced, special case where things aren’t clear-cut. For help with this, please get in touch with a member of the Englebert team.