In brief - Providers of financial products, services and advice must avoid misleading consumers
The Australian Securities and Investments Commission (ASIC) has set its sights on advertising of financial products, services and advice "in any medium and in any form". This has significant implications for all participants in the financial services industry.
Future of Financial Advice Bill (FOFA) proposed to commence on 1 July 2012
On 22 March 2012, the Federal Government's proposed Corporations Amendment (Future of Financial Advice) Bill 2011 was read for a third time in the House of Representatives. Although at the date of this article the Bill has not yet received assent, it is set to become an Act of Parliament which would come into effect on 1 July 2012.
In the midst of the reform process, the Australian Securities and Investments Commission has released a series of Regulatory Guides which will guide or direct the actions of the financial services industry. In particular, the new Regulatory Guide 234 - Advertising financial products and advice services: Good practice guidance (RG 234) has now been issued to assist the industry.
Who is affected by the rules related to advertising financial products and advice services?
Anticipating the onset of tighter regulations for the financial services industry, ASIC has issued a number of new Regulatory Guides which are designed as supplementary regulations in addition to the legislative framework.
RG 234 applies to advertising of financial products and financial advice services. It can apply not only to financial product promoters or providers, but also to product issuers, financial advisers, distributors, agents and publishers of financial product promotions. However, this list is not exhaustive. The regulations may apply to other persons or entities falling into one of the broader categories above if they advertise a financial product or advice service in any way.
What is advertising?
Despite the potentially broad scope of the word "advertising", ASIC unfortunately does not provide guidance on exactly what constitutes an "advertisement" for the purposes of the legislative framework. The standard definition of an advertisement involves public notice, generally of something for sale. It does not necessarily have to reach a particular number of persons.
ASIC does not set out what particular types of advertisements may be regulated. The potential areas that ASIC can police may extend to "any medium in any form". This includes:
- television advertisements
- print media
- internet advertising
- billboards and static advertising
- mail outs (direct advertising)
- presentations or seminars
- any other form of advertising such as telemarketing or text messaging
Internet advertising of financial products and services
The category of "internet advertising" is particularly broad and constantly evolving. In the absence of specific guidelines from ASIC, internet advertising may include website banners, pay-per-click advertisements on Google results pages, listings on classified advertisement websites, chat room postings, "tweets" on Twitter, marketing emails, content of any type on a company's Facebook page, clips posted on YouTube and "editorial" content on a company's website. A financial services provider's website as a whole could also be viewed as an "advertisement" in the public sphere if it proffers goods or services.
It is worth noting that in certain circumstances, companies may even be held liable and fined for postings by third parties on their Facebook wall. Given that internet advertising is such a broad category, those who advertise financial products or services would do well to tread with caution.
Why does ASIC regulate advertising?
In many industries, the mode, style and content of advertising is limited and restricted. A number of products and services in everyday life are considered to be inappropriate for the public sphere or are otherwise restricted to particular audiences.
One of ASIC's roles as a corporate regulator is to police infringements of the legislative framework. When it comes to advertising, the key issue scrutinised by ASIC will be misleading statements.
False or misleading statements
For financial service providers, false or misleading statements are principally spelt out in section 1041E of the Corporations Act 2001 (Cth). Under that provision, a false or misleading statement may lead to a civil or criminal penalty if it is:
- materially false or misleading, and
- is likely to induce persons to apply for, dispose of or acquire financial products or to affect the price for trading in financial products or markets, and
- the person making the statement does not care whether it is true or false or knows or ought reasonably to have known that it was materially misleading.
Although there are a number of different factual situations that may lead to a statement being materially false or misleading, ASIC sets out a number of questions it will ask when determining whether an advertisement is materially misleading, such as:
- Does it clearly and accurately describe a particular product?
- Does it paint a clear and balanced picture?
- Are risks, fees and drawbacks clearly described and presented?
- Can it be presented in a simple and clear way or are its attributes too complex?
- When dealing with advice, does it create a realistic impression of what the advice is likely to achieve, cover or address?
- Are the limitations of the advice clearly identified?
- Are costs realistically presented?
This list is not exhaustive but may provide initial guidance for financial product and advice providers, issuers or supporters when contemplating the theme, atmosphere and presentation of their advertising.
It will be relevant to ask these and other similar questions before putting out an advertisement given the tighter regulation of the financial services industry.
For more information on professional indemnity, please see the website of Colin Biggers & Paisley or contact Kemsley Brennan at email@example.com or James Stanton at firstname.lastname@example.org.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.