The FCA proposed changes to Financial Promotions: What you need to know

The FCA has proposed a new regulatory framework for the way that financial advertising and lead generation is reviewed and approved in the UK. The proposals being considered will make regulated financial firms directly responsible and accountable for the adverts of ‘unauthorised’ marketing firms that they work with. These proposals have likely been designed to strengthen the regulators oversight and control over rogue lead generators and dodgy distributors of financial products.

1. The consultation and the regulators interest in financial promotions has largely been driven by the inquiry into the failure of the investment firm London Capital and Finance (LCF) in January 2019. Specifically of interest is the significant role that the online marketing and lead generation company Surge Financial, is alleged to have played in introducing consumers to LCF which subsequently went bust owing £237million in 2019. Thousands of consumers have been directly affected.

2. This isn't just about wealth management and investments products however, the Government are taking aim at the entire financial advertising sector and seem to ‘get’ that misleading adverts are ruining consumer confidence in the whole financial sector. The consultation reads: ‘Financial promotions are an important tool for firms to advertise financial products…. loss of confidence can reduce the willingness of consumers to engage with the market altogether.’ This consultation is about any and all regulated financial products (e.g, Mortgages, Life Insurance, Health Insurance, Equity Release….)

3. The FCA are proposing a new ‘regulatory gateway’: They want to tighten the rules and make regulated financial firms more responsible for which marketing firms they work with.  Under these new proposals regulated firms will not be able to work with unauthorised marketing firms unless the regulated firm (the buyer of leads) specifically applies to the FCA for consent to do so. In that submission they will then be asked to demonstrate that they have the relevant due diligence processes required to authorise and control the advertising being produced. 

The FCA knows they are failing to control misleading and fraudulent online advertising: “Currently, the FCA does not have comprehensive information on those firms which are approving the financial promotions of unauthorised persons”. The honesty of this statement is commendable.

Fundamentally the FCA doesn’t know who is generating financial adverts and who is buying those leads. This consultation is an attempt to intervene before consumers are targeted and hurt by fraudulent companies like LCF. The proposals will essentially make regulated firms liable for the adverts and lead generators that firms choose to work with through increased reporting.

2. More effective prevention and intervention

The proposals give the clearest indication yet that the FCA intend to make all generators of financial adverts for regulated products directly authorised and/or make the firms they sell to, liable for the adverts. What they are doing is essentially recreating the appointed representative process, specifically for financial promotions and they will expect firms to themselves regulate their marketing partners. This is a welcome change. 

However this will only work if they are also going to hold directly authorised lead generators more accountable for their adverts, landing pages and promotional material. Far too many directly authorised lead generators flout the rules.

3. Ensuring approver firms have relevant expertise

The consultation papers suggest that not all directly authorised firms will be given the required consent to approve external adverts from unauthorised lead generators. This is significant and seemingly aimed at emerging financial products or newer subsets of financial products like online protection. Whether the FCA proposals will have the required enforcement to back this up remains to be seen. 

If enacted the proposals within the legislation will prevent financial firms being able to buy leads as a default option, a right they currently enjoy. If we think specifically about the sort of protection firms that have historically started up quickly and then gone bust because they haven't managed their lead generation partners, clawback and cancelations, this could be a significant and effective lever of control.

4. Improved Due Diligence

The FCA and Treasury are taking aim at shoddy, rogue lead generators within the advertising sector by essentially making it harder for them to be approved either by the regulator themselves or by directly authorised firms. The wording of the consultation largely accepts that the real problem is the adverts themselves but the compliance burden will fall on the buyers of leads, not the lead generators.

Yes - this is a significant step but not for the reasons that you might initially expect.

A lot of the ‘new’ powers that are being asked for already exist, the FCA have simply failed to enforce their own rules. For example, in over a decade of financial marketing and regulated lead generation I don’t know of a single authorised lead generator that has ever been audited or been asked to directly account for any advert (misleading or otherwise) that they have produced. Lead Generation firms (even the authorised ones) can currently create financial promotions with impunity. 

Direct FCA authorisation is often referred to by lead generation firms as a ‘sales tax’ or a ‘cost of doing business’ and no one is afraid of the FCA. Unless a regulated lead generator is ever going to be held to account for the adverts they run then all this proposed process does is generate more revenue for the FCA in potential fees rather than actually tackle misleading advertising. 

Until now the FCA have largely ignored that ‘unauthorised’ lead generators even exist. When challenged about misleading mortgage or insurance advertising the FCA will often point the complaint towards the Advertising Standards Authority as the appropriate regulatory body for adverts ‘outside their scope’. This consultation is a step forward into the real world.

It seems likely that the ‘Gateway’ proposal of the consultation will pass unless there is a serious revolt given the way the document is built around it. What the FCA are really asking for feedback on is how these proposals are implemented.

In light of these proposals I think there are some immediate questions firms that buy financial leads and adverts should consider.

1. If the FCA asked to see all of the adverts and landing pages that are used to introduce consumers to you, could you comply? How often do you update this advertising log and who is responsible for it? Do you trust the information you are being given by external marketing firms?

2. Do you require lead generation firms to be regulated? If not, why not and what levels of control can you document?  It's likely you are going to need an answer to this question very soon.

3. What are the immediate risks to your business if your lead generation supply was turned off tomorrow because of the effects of this consultation? What is your contingency plan?

The answers to these questions might help you consider the relevance of these proposals but they also might help you to review the logic assumptions behind your own advertising strategy.

If you’d like some external, expert help answering any of these questions please do get in touch here.