Using the internet to promote an investment is an effective way to access a large audience. Those using this medium must, however, ensure that they are not in breach of the rules imposed by the Financial Conduct Authority (FCA).
According to the FCA's Perimeter Guidance Manual (PERG) 8.22, the test for whether the contents of a particular website may or may not involve a financial promotion is no different from any other medium.
Clive Gordon (of the then FSA) said in his speech in September 2012 that "...it’s important to bear in mind that our rules are generally media-neutral. By this I mean they focus on the content of the financial
promotion rather than the medium used to communicate it. So when devising a financial promotion for digital media, you should consider exactly the same rules as you would for using print."
PERG 8.22 states that "If a website or part of a website, operated or maintained in the course of business, invites or induces a person to engage in investment activity, it will be a financial promotion" under section 21 of the Financial Services & Markets Act 2000 (FSMA) and therefore needs to be communicated or approved by an authorised person unless it falls within one of the exemptions of the Financial Services & Markets Act 2000 (Financial Promotion) Order 2005 (as amended).
Breach of section 21 of FSMA is a criminal offence.
A financial promotion communicated via a website would be considered as an unsolicited non-real time promotion (PERG 8.10) and this must be taken into account when considering what exemptions may be available.
As with all financial promotions, the content must comply with the rules within the Conduct of Business Sourcebook (COBS); to be clear, fair and not misleading (COBS 4).
The following forms of communication must also be compliant with the FCA's rules if they are indeed financial promotions:
> Sponsored links
> Banner advertisements
> Hypertext links
> Text messages
In June 2010, the FCA's predecessor, the FSA, issued an industry update on 'financial promotions using new media' (new media channels meaning social networking sites (such as Twitter and Facebook), blogs, forums and smart phone applications). Earlier that year a review had been carried out on 30 Twitter and Facebook pages and 20 forums. Although there were some examples of good practice and consideration for the financial promotion rules, there were also instances of poor practice. The common causes for poor practice were:
> failure to provide appropriate risk warnings; and
> a lack of understanding of image advertising.
These points were highlighted again two years later in Clive Gordon's speech. He said "First, risk warnings. It is not acceptable to omit important information or a statement about risk just because you intend to give it later in the sales process. The promotion itself should be fair, clear and not mis-leading. This is known in the industry jargon as ‘standalone compliant’.
Secondly, image advertising. An image advert must consist of only the name of the firm, a logo or an image associated with the firm, a contact point and a reference to the types of regulated activities provided. When advertising goes beyond this, it is no longer just ‘image’ and all the financial promotion rules come into play. Using a digital medium does not make everything an image advert, which is somehow exempt from the financial promotions rules."
He then went on to say:
"There are also a couple of common regulatory myths about using digital media.
In a nutshell, the key message here is to ensure compliance with the FCA's financial promotions rules no matter what medium is used, with the same considerations given, including target audience, risk warnings and the requirement to be clear, fair and not misleading.
The FCA is due to issue guidance notes on using social media for financial promotions during August 2014. Although this new guidance is likely to repeat and reiterate the existing rules, we shall wait in anticipation nonetheless.
You may also be interested in reading:
What is a Financial Promotion?
Financial Promotions - Key issues to avoid
Financial Promotions - Prominence
The content of this article has been extracted from guidance as provided by the FCA and is not inclusive or exhaustive of the rules and guidance provided.
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