Whatever your financial services business model, you are legally responsible for the content of the promotional material that you publish or otherwise make available in the public arena. This is the first of two blogs about the general principles covering promotional materials and a number of particular words, the use of which is either restricted or likely to raise legal and regulatory concerns. This part will cover the legal position in relation to promotional materials and misleading and deceptive conduct.

The legal position in relation to promotional materials

Promotional material can be the content of your website, regulatory disclosure documents, print brochures, advertising (whether mass media or social media), client presentations, call centre scripting or direct mail campaigns.

The chief compliance considerations to keep in mind with promotional material are to avoid engaging in misleading or deceptive conduct and to avoid using restricted words. Other important considerations include rules regarding intellectual property rights and defamation laws.

Failure to meet these requirements can lead to unwanted attention from ASIC as well as the lawyers of disgruntled clients, competitors and copyright owners.

Misleading and deceptive conduct

Financial products and services are usually complex, difficult to understand and with uncertain risks and benefits. Accordingly, providers of financial services need to be aware of the overriding prohibitions on:

  • making false or misleading statements; and
  • engaging in misleading or deceptive conduct.

In the competition to attract the attention of potential clients the search is always on for the marketing strategy that carries the greatest impact. This can lead to issues with:

  • products and services being incorrectly described (especially in relation to risk and benefits);
  • products and services not being fit for the expressed purpose;
  • creating expectations that cannot be met;
  • comparisons with competing products and services;
  • celebrity and "satisfied customer" endorsements;
  • material information being omitted or not made sufficiently prominent.

For example, ASIC took action against a bank that advertised an 'everyday savings account' which had features that, in fact, made it less flexible than the name implied and more suitable for long term saving.

An advertisement's "headline" claim need not necessarily carry all relevant information with it as long as the full story is presented in a prominent and proximate manner. In this regard, the use of "fine print" disclosure, warnings and disclaimers is problematic as the Courts often find such items to be insufficiently prominent - with the result that they are legally ineffective.

An advertisement stating or implying that a particular result or positive outcome is likely, should also include an explanation of any assumptions made and disclosure of any uncertainty or risks associated with obtaining that result or outcome.

In the 2012 case of ASIC v Camelot Derivatives Pty Ltd, the Federal Court considered Camelot's promotion of an options trading strategy. Camelot's managing director made statements to the effect that clients had and could expect to earn significant returns from this strategy, which Camelot had substantial experience in implementing successfully. Unfortunately, the GFC intervened and between 2008 and 2010 many clients incurred significant losses. The Court found that Camelot's clients were induced to use the Camelot strategy by the representations that they could make significant profits through options trading. Camelot's conduct was misleading and deceptive because it did not adequately explain the risks involved, and did not explain clearly the potential for Camelot to make significant profits from brokerage on these transactions – while its clients made significant losses in the market.

Stay tuned for the second blog which will discuss intellectual property rights and our top 12 problem words.

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.