In October 2008, the Financial Services Authority (FSA) and the Banking Code Standards Board (BCSB) published a joint communication on savings advertising. Following this, FSA and BCSB conducted a joint review into the standards found in the market. In this article Brett Hillis and Tom Dunn of Denton Wilde Sapte look at the key findings of the joint review.
October joint communication
In their joint communication last year, FSA and BCSB noted that firms were trying to increase funds raised from the retail market, resulting in the introduction of more innovative and complex savings products and offering enhanced returns for savers. This push for savings may have led not only to an increase in advertising spend for savings accounts but also to more complaints from bank and building society customers about confusing and misleading promotions. Since the communication, banks have continued to look for retail deposits but nominal interest rates on savings products have fallen significantly in line with base rates. Given the concerns over marketing of rates discussed in the October and more recent communications, regulators will be concerned to keep checking advertisements do not promise rates that may not continue.
According to FSA and BCSB research, consumers felt much important information only appeared in the small print of advertisements, which in practice meant many people did not read it at all. They also highlighted particular aspects of advertisements, such as statements on interest rates, as being hard to understand.
As a result, FSA and BCSB had carried out research to assess the scale of the problems. Following their October research, BCSB made a number of changes to its expectations of its subscribers, including telling them to include worked examples in their materials.
FSA and BCSB were concerned at the levels of compliance with relevant rules of promotions for a range of savings products.
The cornerstone of financial regulatory expectations on marketing documents is FSA’s financial promotion rules. FSA requires financial promotions, including those for banking products, to be fair, clear and not misleading. In particular, firms should ensure promotions:
- are accurate and balanced – promotions should not emphasise benefits without also giving a fair and prominent indication of any relevant risks;
- are sufficient and presented in a way the average member of the target audience is likely to understand; and
- do not disguise, diminish or obscure important items, statements or warnings.
Because many promotions for deposit products fall outside much of the detail of FSA’s rules (which mainly apply to more traditional “investment” products), BCSB monitors compliance of certain financial promotions on FSA’s behalf. BCSB enforces the Banking Codes, which contain a Key Commitment requiring subscribers to ensure that advertising and promotional literature is clear and not misleading. Subscribers also need to comply with the Code of Conduct for the Advertising of Interest Bearing Accounts (CCAIBA). The CCAIBA sets out the information advertisements for savings accounts must include, seeking to ensure that adverts are “clear, fair, reasonable and not misleading”.
In addition, of course, are general legal principles on misrepresentation and an overarching theme of FSA and OFT over recent years of treating customers fairly (TCF).
The joint review
FSA and BCSB’s follow-up exercise involved a review of over 100 promotions for various types of cash savings accounts. The review covered cash ISAs, regular savings accounts and fixed and instant access accounts. It did not extend to current accounts, structured deposits or other structured products. The review targeted promotions mainly appearing in the press and on TV over a three-month period from December 2008.
The review looked at specific areas of compliance as well as assessing whether promotions complied with the general requirement to be fair, clear and not misleading. Key subjects included:
- if a saver needed a substantial balance to get an advertised rate, whether the maximum or minimum balance required was prominently displayed;
- for products involving tiered interest rates, whether relevant balances required were prominent;
- whether any withdrawal restrictions were clear;
- if there was any introductory bonus or other rewards whether these were clearly highlighted; and
- whether promotions for regular savings accounts included a worked AER example.
Wherever rates or availability depended on a particular balance, at least the minimum and maximum balance or tier should be included.
Overall FSA and BCSB were satisfied with the general level of compliance. However, they identified some issues with individual firms. Firms were generally good at presenting tiered rates and showing the minimum and maximum balances required for headline rates.
Most of the problems were in press promotions, which accounted for more than half the reviewed samples. The following important failings were identified:
- unclear or insufficient bonus or reward information: although the review did not find firms were failing to disclose the existence of an introductory bonus or reward, some promotions were not clear about the level of the advertised bonus or reward;
- important information in small print, including information on withdrawal restrictions: the regulators have stressed that where there are significant penalties for early withdrawal, information about these should be prominent;
- promotions for regular savings accounts that did not include a worked example of AER: consumers are unlikely properly to understand how interest is calculated and how much they will earn unless they can see an example.
Examples of good and poor practice
Being fair, clear and not misleading: FSA and BCSB highlighted factors that would help a promotion meet the test of being fair, clear and not misleading:
- provision of a clear breakdown of the advertised rate into main rate and introductory bonus or reward rate and leads on the main rate;
- where tiered rates are available, the headline rate applies to the tier that most of the target audience is likely to apply for;
- promotion for ISA transfers that draws the consumer’s attention to the costs of switching.
Risking being unfair, unclear or misleading: Promotions might be unfair, unclear or misleading where a promotion:
- buries information around the introductory bonus in small print;
- uses a headline rate combining both the underlying and bonus rates without stating clearly the level of bonus;
- with a headline rate fails to state clearly and prominently that only existing customers qualify for this rate; and
- contains out-of-date information and/or advertised rates.
BCSB raised specific concerns with several firms and some adverts have already been amended to ensure compliance. FSA and BCSB continue to monitor adverts and state they will take appropriate supervisory action to address the cases of non-compliance with individual firms.
A state of flux
Of course, retail banking regulation is in a state of flux at the moment anyway. The future role of BCSB is unclear as FSA takes over conduct of business regulation for banking from 1 November. Also on 1 November, the UK laws implementing the Payment Services Directive will take effect. Savings products providers are likely to need to review their documents and processes to ensure they reflect and comply with appropriate requirements. The guidance from the FSA/BCSB review is an important part of their compliance picture.