The guidance consolidates much of the case law that has been developed by the courts around misleading and deceptive conduct, and in misrepresentation cases. If issued, we expect it will be a helpful resource for market participants when determining whether advertising contravenes the fair dealing provisions of the FMCA. We highlight some of the key points from the guidance below.
All advertising of financial products and services is potentially in scope
The guidance states that it is focused on the specific application of the fair dealing provisions of the FMCA to advertisements made for the purposes of advertising or promoting offers of financial products for issue. However, the FMA has said that the guidance may also apply to the advertising of financial services.
Advertising has been defined broadly and covers any medium, including traditional forms of advertising (such as magazines, newspapers, radio and television) as well as website “click throughs", text messages, social media and “forums where issuers and investors can communicate".
It is the overall impression that counts
The guidance identifies three key principles for advertising:
- It is the overall impression that counts: the FMA is concerned with the holistic impression perceived by the investor. Intention to mislead or deceive is irrelevant. Literally true statements can still be misleading. Particular care needs to be taken when advertising complex products or where the target investors are vulnerable or ill-informed.
- Omissions can be misleading: the full picture should be presented. “Cherry picking" of information should be avoided.
- Substantiate your claims: representations must have a reasonable basis at the time they are made. It is not enough for the claim to be true, the claim must be supported by evidence – not anecdotes, unsupported opinions or assumptions.
Advertising standards and guidelines
The FMA has distilled the above principles into a series of specific standards and guidelines:
- Advertising must be truthful and accurate.
- Take care when comparing different products.
- Balance risk and reward.
- Take care with phrasing and industry jargon.
- Forecasts must be based on reasonable and supportable assumptions (with particular care required when forecast or fixed returns are presented).
- Do not overemphasise performance at the expense of other material information.
- Warnings and disclaimers should be prominent.
- Disclosure of fees and costs should give a realistic impression of the overall fees an investor is likely to pay.
- Do not claim to be endorsed, approved, authorised or regulated unless the claim is current and verifiable.
- Advertising should be distinguishable from other content.
- Identify offers made only to wholesale investors.
Market participants are encouraged to not only meet these standards, “but also to consider how their conduct actively assists the investing public to make appropriate and considered investment decisions". This comment is consistent with the FMA's broader focus on “conduct and culture" and the fair conduct regime proposed by the Financial Markets (Conduct of Institutions) Amendment Bill (COFI), which is currently awaiting its second reading.
To find out how financial service providers can best prepare for the COFI regime, see The Big Picture: Financial Markets – are you prepared for a conduct regulation regime?
Enforcement
As previously highlighted in the FMA's Statement of Intent 2020-2024 (see our coverage on this here), enforcing fair dealing provisions of the FMCA 2013 is an area of particular focus for the regulator. A breach of the fair dealing provisions carries a number of potential consequences and penalties.
The FMA has also said that that it is willing to use “stop orders" (i.e. prohibitions on advertising) “to stop or prevent advertising or disclosure that is false or misleading, or is likely to mislead or confuse consumers or investors, on matters that influence their investment decision". “Likely to confuse" is a lower threshold than “likely to mislead".
Directors and senior managers take note
The guidance has specifically highlighted the risk of personal liability for breaches of the fair dealing provisions, including where the individual did not directly engage in any misleading or deceptive conduct themselves. The FMA specifically identifies that directors and senior managers “can be liable for misleading conduct carried out by the issuer if they aided, induced, or otherwise are directly or indirectly a party to the misleading conduct".
Next steps
The FMA has sought feedback on the guidance from those involved in advertising and promoting offers of financial products, investor groups and consumer advocates. Submissions close on 16 February 2021.
If you have any questions about the matters raised in this article or would like assistance making a submission, please get in touch with the contacts listed, or your usual Bell Gully advisor.
Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.