The Financial Markets Authority (FMA) has released its Guidance as to what good conduct in the advertising of offers of financial products should look like.
The Guidance takes into account industry feedback following consultation on an initial draft last year.
FMCA – statutory framework
The statutory obligations are set out in the fair dealing provisions in the Financial Markets Conduct Act 2013 (FMCA). These echo the Fair Trading Act and prohibit misleading or deceptive conduct, false or misleading representations, and the making of unsubstantiated claims.
The Guidance also references the FMA’s power under Part 8 of the FMCA to use “stop orders” to prevent the use of “restricted communications” – in practice, according to the FMA, likely to include most advertisements of financial products.
Overall impression is central
The Guidance states that the central consideration for determining whether an advertisement breaches the FMCA will be the “overall impression as perceived by the consumer or investor”.
That means that:
- advertising that is not actually misleading or deceiving can breach the FMCA provided it is likely to mislead or deceive
- the intention of the advertisement is irrelevant
- advertising (or conduct generally) is more likely to mislead where a financial product is complex, or where the investor base being targeted is vulnerable or ill-informed,
- representations that are true and verifiable in isolation are capable of generating a confusing or misleading impression when viewed holistically, and
- omissions, whether deliberate or inadvertent, can be misleading if the omission leaves the audience with an overall misleading impression.
The Guidance incorporates the following additional considerations, which did not appear in the consultation draft:
- the form or context of an advertisement is a relevant consideration as to whether that advertisement is misleading, and
- consumers cannot be expected to study or revisit an advertisement.
Who is a “consumer or investor”?
A key consideration set out in the Guidance which did not appear in the consultation draft is that the “consumer or investor” in question is an “ordinary and reasonable (or typical) member of the advertisement’s audience”. It is not a member of the intended audience, but the audience that the advertisement actually reaches.
FMA’s expectations – advertisements generally
The Guidance sets out the FMA’s expectations for advertisements. Broadly speaking, they are:
- Substantiate claims. All representations made in advertisements should be substantiated, which means ensuring that there is a “reasonable basis” for the representation at the time it was made – particularly where the representation goes to the “nature, suitability and characteristics of a financial product”
- Advertising must be truthful and accurate. This includes:
- ensuring that all information is current, complete and accurate
- information should be presented in a way that is readily understandable by the target audience, giving prominence to key information – rather than “burying” it in fine print, and
- giving consistent information across different communication channels and languages
- Comparing financial products. Comparisons should only be made between sufficiently similar products, and any differences need to be sufficiently explained
- Ensure that risk and reward of financial product is clear. For example, advertisements should not give the impression that the financial product is free from risk or that returns are guaranteed
- Avoid jargon. Unless it is explained, and will be understood by the audience
- Forecast returns only where there are reasonable grounds. The basis of any forecast should be made clear and direct the audience to further information where appropriate
- Avoid emphasising performance at the expense of other information. Advertisements must present performance information in a balanced way and avoid cherry-picking data
- Warnings and disclaimers should be prominent. A misleading or confusing first impression may not be corrected by non-prominent warnings or disclaimers
- Clearly disclose fees and cost. Any description of cost or fees should be consistent with the advertiser’s disclosure documents and give a “realistic impression” of what an investor is likely to pay. In this respect, advertisers should be wary of representing that an investment will attract “no fee” – especially where, in economic substance, a fee is in effect payable
- Claim to be regulated. Advertisements should not claim that the issuer is “governed”, “approved”, “authorised”, or “regulated” unless that is in fact the case
- Advertising should be identified as such. Advertising, including on social media, should not be masked as something other than an advertisement
- Be clear about investments available only to wholesale investors. In particular:
- advertisements about investments available to “eligible investors” should be clear about what an “eligible investor” is to avoid the risk of the audience interpreting “eligible” in the everyday use of the word, and
- care should be taken where advertisements about offers available only to wholesale investors are run in channels likely to be viewed by retail investors.
FMA’s expectations – regulated offers
The Guidance highlights the restrictions in the FMCA on advertising in respect of regulated offers (i.e. offers of financial products) – which provide, broadly speaking, that those advertisements must include prescribed disclosures.
Importantly, the FMA has softened the guidance for advertisements of regulated offers where it is not possible, due to the limitations of the advertising channel (for example, website banner advertisements) to include the required disclosures in the advertisement.
Rather than requiring those advertisements to comply in any event (as was its view in the consultation draft), the FMA now expects:
- no part of the advertisement should give a misleading impression
- (implicitly) that the advertisement should include a link to a “landing page” on which the required disclosures can be found
- messaging should be consistent between the advertisement and the landing page, and
- all required disclosures should feature prominently on the landing page.
We welcome the FMA’s clarification as to the approach it will take in determining whether advertisements are compliant with the FMCA. It is particularly encouraging that the FMA has taken into account feedback from the consultation phase, including with respect to advertising on platforms where the format of the content is limited.
The Guidance highlights the need to take care with the preparation of advertisements, which can sometimes be overlooked or subject of less scrutiny in compliance programs. Providers need to verify the impressions that are likely to be gained from advertisements, as well as their strict accuracy. Because advertisements are often all customers may read, the FMA enforcement team monitors them closely.
If you require further information about the Guidance, please get in touch with one of our contacts.