FCA Compliance for Marketers: Breaking Down the FCA’s COBS 4

30 May 2023

Disclaimers and disclosures are critical in financial marketing to avoid fines, lawsuits, and suspensions, so it makes sense that they are a primary concern for our Financial Services clients with over 90% claiming they are concerned about them. FINRA reviewed over 65,000 advertisements and sales communications in 2021, and the FCA blocked over 8,500 adverts in 2022. The regulatory body ordered WealthPress pay over a million USD in consumer refunds for making false and deceiving claims in 2023. So, needless to say, disclaimers and disclosures in marketing are essential.

With strict regulations regarding the marketing of financial products, there is a wide range of (often complex and lengthy) disclaimers and disclosures to be used. The disclaimers and disclosures required also vary based on your local governing authority (e.g., the FCA in the UK, FINRA in the US, and the ACCC in Australia). Ensuring you are using the correct and most up-to-date regulatory language can be a challenge, particularly if they aren’t clearly documented and socialized within your organization.

As a starting point, here are the most common types of disclaimers required in advertising and blog content. These should be regularly updated and communicated to marketing by your legal or compliance team to ensure relevance and conformity.

General Past Performance

The general past performance disclaimer explains to investors that past performance is not indicative of how an investment will perform in the future. With this disclaimer, firms don’t promise misleading returns by emphasizing past successes.

Simulated Past Performance

Simulated past performance is when a firm details how it would have performed in a given market. By the FCA’s rules, simulated performance must be based on the performance of an actual investment or financial index that is the same as the performance you are simulating. You must also state that simulated past performance is not an indicator of future results.

Investment Risk

Your disclaimer for investment risk should advise that the investor could lose money and the extent to which they could lose money. Consider also pointing investors toward other low-risk investment options so they’re aware that a high-risk investment isn’t their only choice.

Comparison Rate

The comparison rate disclaimer gives context to any comparisons you make to your competitors. It explains that prices and fees change, your comparisons are limited to certain examples, and exclusions apply, and it specifies the exact details upon which you are basing your comparison. The goal of a comparison rate disclaimer is to absolve you of any comparisons you’ve made to other competitors on your website.

Performance & Returns

The performance and returns disclaimer emphasizes that a positive performance or positive returns are not guaranteed.

Forecast

A forecast disclaimer explains that the details stated are true as of the time that they were stated but that you are not claiming to be responsible for updating it according to policy and market changes.

General Advice Warning

A general advice warning explains to potential investors that the information presented does not account for their particular circumstances, such as financial needs or objectives. This disclaimer often recommends that investors seek financial or legal advice before investing.

General Finance

The general finance disclaimer explains that the financial information on your website isn’t financial advice or a recommendation. Instead, the content is intended for informational purposes only, and users should seek professional advice before acting on it.

Confidential Material

The confidential material disclaimer states that the enclosed material is only intended for the singular recipient and is not meant to be shared. It can protect the company in the event that the recipient shares confidential information with others.

Partnership

The partnership disclaimer clearly states that the enclosed communications do not constitute a partnership. It makes the relationship between the communicating parties clear and absolves any doubt of connection.

Logos & Brand

The logos and brand disclaimer states that all logos and brand names belong to their respective owners and that they are shown on your website for identification purposes only. It also clarifies that showing these brands and logos is not an endorsement of these companies.

Copyright

A copyright disclaimer claims your rights over the intellectual property, logos, and content on your website. It states that the rights over your copyrighted materials are protected in case any parties repurpose it in a way that isn’t to your liking.

The Rules Will Change, but There’s an Easy Way To Stay Compliant

In the UK, HMT and the FCA are currently reviewing their disclaimer and disclosure policies and discussing changes that could include a character limit for disclosures, formatting changes (what must come first in your disclaimer), and a change in flexibility in phrasing to address a target market. Similarly the SEC’s “New Marketing Rule” that came into enforcement late last year contains a section on enhancing existing disclosure requirements that investment advisors must abide by.

Ensure you are always using accurate and up to date disclosures and disclaimers with Red Marker.

Red Marker is custom trained AI-powered software that identifies risks in marketing assets, and automates compliance feedback for marketing, so there are significantly less amends and revisions between marketing and legal departments.

Click here to contact us if you’d like to schedule a 30-minute discovery call to discuss your marketing compliance processes and needs.
Marketing that isn’t compliant with FCA regulation presents a huge liability for financial services companies. In 2022, the FCA fined Metro Bank £10M for publishing incorrect information, and this is why it is critical for marketers in financial services to understand this key section of the FCA Handbook: FCA Handbook’s Conduct of Business Sourcebook (COBS) Chapter 4.

Marketers should know this rule inside and out, but that isn’t always easy since the regulatory requirements are dense and difficult to digest. In this article, we break down some of the most important sections of COBS 4 to get you up to speed.

Who Is the FCA?

The Financial Conduct Authority (FCA) is the United Kingdom’s financial regulatory agency that operates separately from the UK government and sets the rules and regulations for the finance industry. This regulatory body exists to create an extra layer of protection between the government and financial organizations and make sure that financial services firms comply with UK law. In addition to traditional regulated activities, the FCA monitors for compliance over activities such as AML (anti-money laundering), outsourcing that may lead to market abuse in addition to providing consumer credit business plans to clients.

What Is FCA Compliance?

FCA compliance means following all their rules and regulations. Without the FCA, companies trading in financial markets would be under the direct scrutiny of the government. This would mean instead of sanctions like fines, suspensions, and long-term bans, companies and individuals could be subject to jail time.

That’s not to say that the FCA’s rules shouldn’t be taken seriously. The agency can issue crippling fines and even ban companies or individuals from trading for life if the violations are serious enough. It can also share information about financial crimes with the government for further action.

What Is the Most Important Part of the FCA Handbook for Marketers ?

The most important part of the FCA handbook for marketers is Chapter 4 of the FCA’s Conduct of Business Sourcebook, which details the rules for communications and financial promotions. This chapter is dense, like the rest of the handbook, so we break down the most important sections below. Bookmark this page to navigate COBS 4 more easily in the future.

Here are the most important sections of COBS 4, with a brief summary for each section.

COBS 4.2: Fair, Clear and Not Misleading Communications

This section states that financial promotions and communications must abide by the “fair, clear, and not misleading rule.” This rule is designed to ensure consumers are getting what they’ve been promised and that there are no surprises later on.

This rule applies to communications for:

• Customers and potential customers
• Eligible counterparties, which include
• Investment firms
• Credit institutions
• Insurance companies
• Collective investment schemes
• Pension funds or their management companies
• Financial institutions
• National governments, like a public body that deals with public debt at the national level
• Central banks
• Supranational organizations
• Any financial promotion EXCEPT an excluded communication, a non-retail communication, or a third-party prospectus

The expectations are different for different clients. Retail clients require that more information be provided than professional clients or eligible counterparties (listed above).

You must make sure that your financial promotion:

• Discloses risk
• Is transparent about both short- and long-term expectations
• Clearly explains complex structures (especially that benefit the firm)
• Does not falsely lead the client to believe that a statement was endorsed by the FCA or other regulatory body when it was not
• Clearly states if an offered product is not produced by the firm (such as a life insurance policy)
• Does not provide any false guarantee, promise of protection, or security

COBS 4.5: Communicating with Retail Clients (Non-MiFID Provisions)

This section explains the rules of communicating with retail clients, which means a client who is neither a professional client nor an eligible counterparty (listed above) or, in plain English, an inexperienced investor.

A firm must make sure that the information in their communications:

• Includes the name of the firm and date of communication
• Is accurate and transparently represents risks
• Is understandable to the average potential client
• Represents risks in an equal font and layout priority consistent with the rest of the information
• Links the FRN (firm reference number) in the format: “Approver FRN”
• Includes the name of the firm that approved the communication
• Presents comparisons with other businesses in a meaningful and fair way
• Accurately discloses past performance data and does not imply that it is indicative of future performance

COBS 4.5A: Communicating with Clients (Including Past, Simulated Past and Future Performance) (MiFID Provisions)

This section explains the rules for communicating with clients and equivalent parties, which more or less means experienced investors. Your information for clients must include:

• The name of the investment firm
• Consistent font size and layout for disclaimers
• Language understandable by the average member or group it is intended for
• No hidden disclaimers or warnings

Past performance data for clients must cover the past five years and must present that this data is not indicative of future performance. The currency must be clearly stated in this statement, and any commissions, fees, and charges must be clearly disclosed.

Firms must disclose that inherently liquid assets can be hard to sell and, therefore, can lead to delayed result times and tempered results.

COBS 4.6: Past, Simulated Past and Future Performance (Non-MiFID Provisions)

The gist of this section, as you may have gathered from previous sections, is that past performance must be accurately portrayed and cannot be represented as indicative of future performance. In addition to the points in the above section, you must ensure that:

• The most prominent part of your statement is not the fact that you’re making the statement itself. The statement should foremost be informative of accurate past results.
• Simulated past performance must be accurately represented and clearly not indicate future performance.
• Fees, commissions, and charges are accurately disclosed in representations of future performance.
• Risk is accurately reflected.

Past performance must be displayed in the following format:

COBS 4.10: Approving and Confirming Compliance of Financial Promotions

This section details how companies are required to have procedures in place to approve communications and financial promotions. Firms must take reasonable steps to approve each communication and must confirm in writing quarterly that existing communications haven’t changed.

Unauthorized individuals cannot communicate a financial promotion. Firms cannot approve communications in person or over the phone—they should be approved in writing to ensure a paper trail.

Firms are responsible for the approval of materials and are not exempt if the materials are claimed to be approved by another firm. The firm must make a reasonable effort to confirm the approval. Firms must also prevent conflicts of interest with their senior management and approval officers.

FCA Compliance Tools

Here are some helpful resources to use while creating marketing materials for the financial services industry in the UK:

• FCA Handbook
• COBS Chapter 4
• Simplifie’s Compliance Guide to Financial Promotions

Make Sure You’re FCA Compliant with Red Marker

Maintaining compliance with FCA regulations can be complex. Fortunately, Red Marker provides a solution. Red Marker’s custom-trained AI automation detects and flags marketing content that doesn’t follow FCA requirements, so risky copy can be fixed before being submitted to compliance. Our new RiskGPT functionality uses generative AI to suggest new copy options that are compliant with FCA, FINRA, and FTC’s Truth in Advertising conduct rules, as well as other relevant regulations.

Click here to contact us if you’d like to book a 30-minute discovery call to walk through your marketing compliance processes and needs.

NOTE: This post isn’t a substitute for legal or regulatory advice; please seek legal counsel on compliance-related issues.