This failure resulted in the misleading advertising campaign entitled 'Free Xda' for Cantor Mobile, the firm's new spread betting device. The promotional material, which included flyers handed out at London stations, posters and advertisements on television and in the popular press, did not contain adequate warnings about the risks of spread betting and consequently put a large number of potential customers at risk.
A key risk of spread betting is that if a spread bet position moves against the customer they can lose far more than their initial deposit. Although the firm's terms and conditions contained risk warnings which the customer had to agree to before they could spread bet, the risk warnings were not sufficiently prominent and the FSA found that Cantor Index could not assume investors had read and understood them. The FSA also found that the structure of the offer of a "free" combined handheld computer and mobile telephone known as an "Xda", incentivised consumers to spread bet. Additionally, it was promoted in a way that attracted the attention of relatively less experienced investors, and the firm did not consider the greater potential risk posed or take appropriate additional steps to ensure that those investors understood the risks associated with spread betting. Within a few days of the campaign's launch, the FSA's Financial Promotions Monitoring Team wrote to Cantor Index asking the firm to amend its promotional material.
Anna Bradley, Director of the FSA's Retail Themes Division, said:
"The provision of clear, fair and not misleading financial promotions is a key priority for the FSA because of the potential impact that misleading promotions can have on consumers. This is particularly the case in relation to high risk activities such as spread betting where the key risk is that a customer could lose substantially more than his original deposit.
"It is crucial that all firms ensure that they establish and maintain rigorous and effective procedures for approving financial promotions.
"Cantor Index should have paid more attention to the greater potential risk posed to less experienced investors and the greater need to ensure that the risks associated with spread betting were likely to be understood by them. This should have been done through robust systems and controls."
In fixing the amount of penalty the FSA has recognised that no customer of Cantor Index suffered any loss as a result of these failings and the potential impact of these failings was mitigated by the remedial action since undertaken by Cantor Index.
Working with firms to ensure financial promotions are clear, fair and not misleading is a key priority for the FSA. Other firms that have been fined for misleading literature include: AXA, Berkeley Jacobs and Chase de Vere. The FSA also recently sent a letter to all CEOs of spread betting firms highlighting the importance of ensuring the risks were explained to potential customers.
The FSA has established a hotline for reporting financial advertisements that appear to be misleading. The number is: 0845 730 0168. Reports may also be made via the FSA website: www.fsa.gov.uk.
