Over the last 18 months the Financial Conduct Authority (FCA) has often hinted that it would enact changes to regulate online financial services advertising - It's huffed and puffed but hasn’t blown any houses down.
All of that changed yesterday (30th June) when Google emailed its advertiser client base, announcing a new policy. From August 30th all websites involved with financial advertising ‘must demonstrate that they are authorized by the UK Financial Conduct Authority’.
We think that the new rules will challenge and change financial lead generation for lead sellers and lead buyers in the UK and will lead to significant commercial upheaval in September 2021.
This is the Contact State guide for what this all means to your customers and your business.
What are the new Google financial advertising rules?
- All Google financial advertisers will require an FCA number (FRN) from Aug 30th.
- Lead advertisers will need to be directly authorised by the FCA or become an appointed rep of another directly authorised business (i.e. the lead buyer).
- The changes are for all Google advertising formats (Youtube, email, display etc) not just the search engine
As it stands now, anyone can create a lead generation website, a set of google adverts and be selling regulated financial product leads within hours. By making an FCA number a requirement to advertise, Google and the FCA have placed a significant firewall between the consumer, the lead generator and lead buyer.
Advertisers that intend to continue producing financial adverts after 30th August will have to fit into one of the three Google categories:
- FCA-authorized advertisers:
- Approved third parties:
- Exempt non-financial services advertisers:
Lead generators who sell products like Insurance, Mortgages and Pensions will have to be directly authorised by the FCA (Option 1) or be an Appointed Representative (AR) or Introducer Appointed Representative (IAR) of another directly authorised firm (option 2). Option 3 requires more clarity than is available right now from Google but feels highly unlikely to include lead generators when specific provision has been made for lead generation in option 2.
It is interesting to note that Google appears to have copied the FCA’s language and methodology for ARs and IARs. They clearly intend to push the liability and regulatory oversight of this process and the wider financial promotions approval responsibility down the chain to the lead buyer:
“If you meet the definition of an Approved Third Party above, you will need an FCA-authorized firm to initiate verification for you by submitting a list of domains or websites that you use to promote their services….….Any time you want to add or remove an Approved Third Party, you will need to submit the form again. You must notify us immediately if you cease to approve the promotions of any third party. “
What Google has introduced looks remarkably similar to the proposals that the FCA themselves brought forward for consultation in 2020. The FCA idea was to make directly authorised lead buyers take on the liability and responsibility of the lead generation process which is in effect what these Google changes achieve.
What effect will new Google advertising rules have on lead buyers and sellers?
- Many lead buyers could lose their existing supply of leads
- The queue to become a directly authorised lead generator will be very long
- Lead buyers will need to make lead generators ARs/IARs but carefully mitigate the risks
Financial services firms of all shapes and sizes rely on lead generation for new business and many of their marketing partners will be unregulated. Contact State believes that in fact the majority of UK financial services lead generation is undertaken by unregulated firms, these changes affect hundreds of lead sellers and buyers.
As a result many lead generation firms will rush to get their FCA applications submitted only to find out there is a very long queue. The process takes a minimum of 4 months and can often take much longer. The regulator expects to see good corporate governance, significant capital reserves and a significant control function process for the approval of new adverts; most lead generators will not have these internal controls.
In the short term (which could become much longer term) unregulated lead generation firms will ask lead buyers to ‘borrow’ their authorisation as an approved third party via the IAR or AR route. It's quick and easy for the buyer and provides the lead seller with an FCA number. It's also fraught with serious compliance danger for directly authorised firms as we analysed in this article, ‘Making Lead Generators ARs / IARs is Risky’.
If you buy leads from an unregulated lead generators what should you do?
- Start organising your September / October and November lead budgets right now, start new lead trials in July and August.
- Mitigate the risks and increase your oversight of ARs and IARs with data certification which will allow you to track advertising undertaken in your name
- Involve your compliance team / officer from day 1. Buying leads in this new process will make you as liable for adverts as though you were producing the leads yourself.
If you generate leads and are currently unregulated, what should you do?
- Become directly authorised and work with a compliance consultant to guide you through the process. If you start now, you might be approved by Jan 2022.
- Have an open and honest conversation with your lead buying clients about the changes you need to make to stay in business. What confidence can you provide to a lead buyer that will persuade them to lend you FCA authorisation via AR / IAR?
- Start building an advertising register and demonstrate who has effective control and signoff for each individual advert. Start with independent data certification.
How will the Google rules challenge misleading and fraudulent lead generation?
Contact State believes that there are three main effects of new google rules on financial advertising that will have a significant effect on combating misleading and fraudulent advertising.
Quick and dirty lead generation is over (on Google)
Financial products like Life & Health Insurance, Equity Release, Mortgages and Pensions are blighted by poorly written, wildly inaccurate data capture forms that fraudulently incentivise consumers to fill in forms.
Because Google will require each advertiser to have an FCA number, statements on each website will now be the equivalent of a regulated financial promotion and will be easier to report and challenge. The biggest casualty here is affiliate networks who buy and resell consumer data.
Offshore lead generation will be challenged
Moving a business offshore for the sole purpose of avoiding VAT or avoiding corporation tax is and always has been fraud (which has ironically also been pointed out to Google). However in the UK lead generation industry it has been much easier for tax avoiders to work with large lead buyers because of a lack of regulatory oversight by HMRC; advertising firms can hide their location.
This will become much harder now if firms based purely offshore for the purpose of avoiding tax have to become directly authorised. HMRC will be able to review the FCA register and link together the Directors behind a business and trace whether they are being honest about a company’s true location.
It will be easier for consumers to complain the FCA
The FCA element of the new rules is going to challenge that as all websites will need to carry the FCA firm number responsible for approving each advert. Lead generation on Google has often been an opaque process where it's very hard to track and trace those actually responsible for an advert and website; that's about to change.
The FCA / Google changes are a calculated leap in the right direction
For the last two years, we’ve actively called for and provided the rationale for why making financial advertisers more responsible and accountable is vital to a healthy financial advertising infrastructure. The regulatory changes we’ve reported and discussed in this guide are unexpected and sweeping, but they are welcome and a big step in the right direction.
By tying financial advertisers to the regulator, to directly authorised firms and to individual directors who manage oversight and regulatory control of financial promotions, it will become a lot easier to tell good and bad lead generators apart. It will be much easier to report fraud to the FCA and much easier to strike off repeat offenders.
Google matters most when it comes to consumer exposure to financial advertising but they aren’t the only tech giant. Facebook, Taboola and MSN will all have to face up to their own regulatory inadequacy and lack of duty of care for the adverts they receive money for in the coming months. Once the ball starts rolling, it won’t be stopped.
The process of regulatory certification of the advertiser will lead to better customer outcomes for millions of ordinary people who go online to solve a financial question or problem. Ensuring that consumers are advertised too fairly, have control over their data and ultimate destination and are protected from scammers isn't a new idea, but it's a good one.