The Financial Markets Authority (FMA) has published its guidance note on advertising offers of financial products under the Financial Markets Conduct Act 2013 (FMCA). It comes after the FMA initially consulted on the draft guidance in November 2020.
Who needs to read it? Why?
All financial market participants who may advertise financial products should carefully read the guidance note and should continue to ensure that their own advertising and practices are consistent with the FMCA.
Other businesses in the financial services industry should also read the guidance. While the guidance focuses on the application of the fair dealing provisions under Part 2 of FMCA to “financial products”, the key principles set out in the guidance are equally applicable in relation to the advertisements of “financial services”.
What does it cover?
The guidance expands on the definition of “advertisement” under the FMCA, noting that its broad meaning means an advertisement “may not need to specifically mention an offer of a financial product or even a financial product to be captured by the fair dealing principles and advertising expectations outlined in this guidance”. It can also be “via any medium” e.g. social media, presentations and seminars, and forums where issuers and investors can communicate (and others).
The guidance sets out three key principles to be considered in respect of advertising and the fair dealing provisions:
1. It is the overall impression that counts – Whether an advertisement is likely to mislead, deceive or confuse depends on the overall impression as perceived by the consumer or investor.
- The guidance lists certain factors that can affect this, e.g. where the financial product is complex, where consumers are vulnerable, the impression of the overall advertisement (even if statements are true in isolation), the form/context of the advertisement.
- The relevant test for whether something is misleading, deceptive or confusing is the reaction of an ordinary and reasonable (or typical) member of the advertisement’s audience.
2. Omissions can be misleading, deceptive or confusing – An omission can be either deliberate or inadvertent. An omission or partial disclosure could still leave an overall misleading, deceptive or confusing impression on the investor.
3. Substantiate your claims – Representations made in advertisements are required to be substantiated, which means having a reasonable basis for the representation at the time the representation is made. The FMA is particularly interested in representations in advertisements regarding the nature, suitability and characteristics of a financial product.
The guidance sets out a list a number of “advertising expectations” for how the principles of fair dealing should be applied to the advertising of offers of financial products, which are broken down and summarised as follows:
- advertising must be truthful and accurate (and care should be taken for multiple language communications);
- take care when comparing different products;
- balance risk and reward;
- take care with phrasing and industry jargon;
- forecasts must be based on reasonable and supportable assumptions;
- do not overemphasise performance at the expense of other material information;
- warnings and disclaimers should be prominent;
- clearly disclose fees and costs;
- do not claim to be endorsed, approved or regulated;
- advertising should be discernible from other content (such as sponsored content); and
- identify offers that are made only to wholesale investors.
The guidance also discusses requirements on advertising of regulated offers (under the requirements in Part 3 of the FMCA). Specifically, it sets out the FMA’s expectations where the required disclosures cannot be given due to content restrictions on certain advertising platforms.
While the principles and expectations in the guidance are not legally binding, the FMA is actively encouraging market participants to “follow the principles set out in this guidance” and “consider how their conduct actively assists investors to make appropriate and considered investment decisions.”
We expect that the FMA will continue to closely monitor to advertisements and statements for compliance with the FMCA. This trend can be seen by the FMA’s directions to address misleading advertising, last week and earlier this year.
If you have any questions in relation to the consultation, or the FMCA fair dealing and advertising requirements in general, please contact one of our experts.
Co-authored by Lana Ou, a Solicitor in our Financial Services team.
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