Effective April 1, 2013, the Financial Services Authority’s (“FSA”) split into two new regulatory authorities: the Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority (“FCA”). The PRA, which is part of the Bank of England, is now prudential regulator for banks, building societies, and credit unions (collectively deposit-takers), insurers, and major investment firms. The FCA will regulate “conduct” of financial services firms and regulate the “prudential” standards of financial services firms not regulated by the PRA.
The communications rules that were previously governed under the FSA are now governed by the FCA. As with the FSA, the FCA’s Conduct of Business Sourcebook (“COBS”) requires financial and insurance firms to ensure that their communication and/or financial promotions are fair, clear, and not misleading. The FCA will have the power to ban promotions that don’t meet these standards. Marketing teams will need to be extra diligent in producing clean and accurate descriptions, and compliance teams will need to ensure they have robust approval procedures in place.
In addition, extensive guidance has been provided in Chapter 8 of the FCA’s Perimeter Guidance Manual (“PERG”) on the interpretation of the financial promotion restriction, which is intended to ensure compliant behavior in all forms of communication, including via electronic mediums. If communication through electronic mediums (websites or social networks) invite or induce a person to engage in investment activity, it will be considered a financial promotion. The FCA have recognized the significance of the Internet as a medium for communicating financial promotion in their recent revisions to the PERG manual and make clear that “the test for whether the content on a website involves a financial promotion is no different to any other medium.”
Further guidance as to what may or may not involve financial promotion is set out in chapter 8.22. For example, a hypertext link may, in certain circumstances, be a financial promotion in and of itself, and banners or changeable text may also be considered financial promotion by the FCA. However, there is nothing that specifically deals with financial promotion made via social media.
The communication of financial promotions by a person in the course of business is restricted unless:
- it is from an authorized person;
- the content of the communication is approved by an authorized person; or
- the communication is exempt under the FSMA (Financial Promotion) Order 2005 (SI 2005/1529).
If the relevant postings to social media sites are considered to be “financial promotions,” then these will need to be “approved” by an FCA authorized person before they are published. In order for financial and insurance firms to be compliant with the FCA financial promotions communication rules (namely COBS 4, BCOBS 2, ICOBS 2, and MCOB 3), they should ensure they satisfy the following four pillars of social media compliance:
The Financial Services and Markets Act 2000 (FSMA) imposes criminal sanctions for breaches of the financial promotion restrictions. Additionally, agreements entered into by a person as a consequence of a communication made in breach of the financial promotions restrictions may become unenforceable. If communications and financial promotions are not compliant with the guidelines above, the FCA is also empowered to ban them. This power, granted through FSMA, allows the FCA to remove promotions either immediately from the market or prevent them from being used in the first place, all without having to go through any enforcement process.
How can Hearsay Social help?
Hearsay Social’s enterprise technology enables top financial services firms and their advisors and sales representatives to more efficiently and successfully leverage social media to prospect, retain clients, and expand business, all while minimizing reputational and regulatory risk.
The Hearsay Social Compliance Solution specifically helps legal and compliance teams with the social media regulatory requirements summarized above including policy, training, content, supervision, and record keeping. With customizable workflows and notifications, the solution radically streamlines the supervision and review process, while the Content Library enables marketing professionals to distribute pre-approved brand content to financial representatives field.
Disclaimer: The material available on this blog is for informational purposes only and not for the purpose of providing legal advice. We make no guarantees on the accuracy of the information provided herein.