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The FSA found that the three promotions each entitled, "The 25 Shares Most Likely to Double in 2004", which were published in two national newspapers and one national journal, posed a risk to customers in that they created an unrealistic expectation and were unbalanced. They accentuated the benefits of investing in penny shares which were being recommended in the firm's magazine, without clear and fair mention of material risks in shares generally and penny shares in particular.
These failings were made more serious by other deficiencies including false statements that the firm had received information from a "panel of financial experts" and received "secret tip offs", when it had not. The firm did not have systems and controls in place to ensure that the compliance officer was appropriately supervised and that he was competent in approving financial promotions.
Anna Bradley, Director of the FSA's Retail Themes Division, said:
"All financial promotions must be clear fair and not misleading and firms must not make false statements in their marketing material. Potential customers must be able to discern the key risks of an investment, as well as its benefits. The provision of clear, fair and not misleading financial promotions is a key priority for the FSA. All firms, whether large or small, need to ensure they have appropriate systems and controls in place to meet FSA regulations."
"Last week, we published a review outlining for firms our approach to regulating financial promotions, some key issues and our next steps. We will also be launching a website in the near future which will provide further assistance for firms; however, firms must remember that it remains their responsibility to produce balanced, unambiguous promotions that help consumers to make the right choice about the right product at the right time."
The defects in the promotions were identified by the FSA's Financial Promotions and Monitoring Team, which was set up to increase the monitoring and detection of financial promotions that breach regulations. Since the team was set up, the FSA has also taken action in high profile cases involving AXA Sun-Life, Hemscott Investment Analysis Ltd, and Cantor Index, and the regulator announced last week that financial promotions will remain a priority in the coming period.
In fixing the amount of penalty the FSA has recognised the limited impact of the promotions, the remedial actions taken by the Firm and the Firm's co-operation during the course of the investigation.
Consumers who see financial promotions they think are misleading should report them to the FSA either through the website or through the financial promotions hotline on 0845 730 0168.
Background
- The full text of the Final Notice issued by the FSA includes the background to the case, the relevant statutory provisions, regulatory requirements contravened and the factors taken into account by the RDC when setting the level of the fine.
- A full copy of the FSA's review, 'Financial Promotions: Taking Stock and Moving Forward', is available on our website.
- Financial penalties are not treated as income by the FSA. They are applied for the benefit of authorised persons (or the issuers of securities admitted to the official list) as appropriate, and so given back to the industry in subsequent years.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- Our aim is to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve our business capability and effectiveness.
