In April the FCA published Occasional Paper 26, encouraging debate on financial promotions and pointing to ‘rigorous evidence’ in support of the existing financial promotions regime. Is this a hint of things to come, or does it simply consolidate existing FCA rules? asks Shoosmiths’ Dan Bennett
Occasional Paper 26, titled From advert to action: behavioural insights into advertising of financial products, is divided into three stages – See, Interpret and Act – which together present a framework for understanding how consumers process information in financial promotions.
We set out below what we feel are the key lessons to be learnt from each section in turn.
The Financial Conduct Authority (FCA) has noted that people notice things that are salient – that is, objects which stand out from their environments because they differ from them in colour, size or because of other attributes.
This means it is important to take into account the relative salience of different items in a financial promotion when considering what a consumer will likely take away from it.
The FCA has noted that framing – the presentation of information in a way that encourages a particular interpretation, the presentation of numbers and using implication as opposed to statements of fact – affects consumer understanding.
This creates the potential for consumers to misunderstand and for advertisers to mislead.
The FCA has noted that a consumer may be influenced to purchase a product through appeals to emotion, the use of principles of influence such as scarcity or the use of rules of thumb, and that these techniques may not be noticed by a consumer, nor factor consciously in a consumer’s decision.
The FCA acknowledges that problems can occur at every stage of a consumer’s information processing, and accepts that a risk of confusion or misunderstanding can never be removed entirely.
However, the FCA encourages advertisers to think about a financial promotion from the point of view of a consumer in order to fairly assess the appropriateness of a financial promotion before it is published. The FCA indicates that the following questions might be a useful place to start:
- Will a consumer understand the financial promotion?
- Will the financial promotion give a consumer a balanced impression of the product or service on offer?
- What techniques does the financial promotion use to encourage a certain interpretation? Are these techniques fair, justified and proportionate?
It is important to note that this paper has no effect on a firm’s obligations to comply with existing rules in respect of financial promotions, including Chapter 3 of the FCA’s Consumer Credit sourcebook. However, it does provide a useful steer as to the FCA’s current focus, and what “clear, fair and not misleading” should look like in practice.
The paper also hints of what the financial promotions regime might look like in the future. If psychology, sociology and economics are going to be relevant considerations, a more consumer centric, flexible and holistic financial promotions regime may be just around the corner.