Financial services firms should keep tabs on their social networking, other internet communications and iPhone apps to make sure that they stay up to date and compliant, according to regulator the Financial Services Authority (FSA).
Firms must apply all the strict advertising rules their formal communications are subject to, even if the communication is in a more informal medium such as a Twitter post or a message board comment, it said (pdf).
The FSA has studied the way that financial services companies communicate to the public and has found that some of communication through new media channels lacks compliance with its safeguards.
Companies published Twitter updates or commented on discussion threads without the usual disclaimers and risk warnings, it found, and engaged in behaviour that acted as promotional activity without complying with all the FSA's rules, the regulator found.
The FSA studied 30 Twitter and Facebook pages and examined companies' behaviour on financial forums.
"Throughout the review we identified good and poor practice among firms who had adopted the use of new media to communicate financial promotions," said an FSA statement on its study. "Some promotions lacked risk warnings. Other promotions, while not very specific about products or services, nevertheless went beyond the definition of ‘image advertising’."
'Image advertising' is the display simply of a company's logo, name and a simple list of the services it provides. This is the only kind of advertising that is exempt from many of the FSA's strict rules.
The FSA said that firms must be aware that all their communications could come under scrutiny.
"Firms may not have considered these factors to meet the definition of a financial promotion and therefore have not applied the relevant communication rule," said the FSA about the new media promotions. "Our rules cover all communications by regulated firms to clients, not just promotional ones. The rules for non-promotional communications are fairly high-level – the main rule is that communications must be fair, clear and not misleading."
The FSA said that where financial services firms do make use of new media as a platform for advertising they must make sure that the information stays accurate and relevant.
"New media may date more quickly than traditional media channels, so regular reviews to ensure that information is up-to-date may be required," it said.
The FSA also said that because of its demands that ads carry certain risk information, some media may be by definition unsuitable for financial services advertising.
"It is important to consider whether [a] channel is a suitable method for the type of communication. For example, Twitter limits the number of characters that can be used, which may be insufficient to provide balanced and sufficient information," it said.
"It is important to consider whether the risk information could be displayed prominently and clearly using this media channel," said the FSA. "Promotions and communications made using new media must meet the requirements for stand-alone compliance."
An FSA note on stand-alone compliance, published in 2009, says that every financial promotion must comply with all of the relevant financial promotions rules. "It is not acceptable, for example, for firms to omit important risk information just because they intend to give it later in the sales process," it says. "All financial promotions must be stand-alone compliant, regardless of their form, content, location or target audience, although these factors will be relevant to firms’ assessments of what to include.
"Where space is limited it is for firms to decide which benefits (and consequently which risks) to include," says that document.
OUT-LAW asked the FSA if promotions on Twitter that provide a link to further details are likely to fall foul of its rules on stand-alone compliance. An FSA spokeswoman said the FSA would not be prescriptive on that point.
"If you have got a firm that is going beyond image advertisement then you need to have the warnings there and they need to be prominent. It's going to trigger the different rules, [namely] COBS 4 [the Conduct of Business Sourcebook rules on communicating with clients]."
COBS 4 is the rule that requires communications and financial promotions to be fair, clear and not misleading. It applies, according to COBS 4.2.2, "in a way that is appropriate and proportionate taking into account the means of communication and the information the communication is intended to convey".
The FSA's spokeswoman told OUT-LAW that it will be up to each firm or Independent Financial Advisor to work out what COBS 4 means for them in relation to Twitter, "in particular in terms of prominence – whether it's in 140 characters or in the note at the side where the profile is.
"The FSA is not being prescriptive about this," she said. "The rules are media neutral. Those rules and regulations stand regardless of whatever media you are using. Each IFA or each firm is going to market themselves in a completely different ways."
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