The Financial Markets Authority (FMA), New Zealand's regulator for financial services, has released a guidance note to licensed peer-to-peer (P2P) lending services, licensed crowdfunding services for fair dealing in advertising and communicating offers of financial products or services.
Who is this guidance for?
- The FMA addressed the guidance note to P2P lending services and crowdfunding services, but it is useful for anyone who is promoting or advising others about these services (i.e marketing teams, investment bankers, lawyers).
- The fair dealing expectations stretch beyond New Zealand's borders, so they apply to people overseas. Anyone who acts in relation to, or makes an offer of financial products or services in New Zealand should take note.
- The guidance note is applicable to any media channel that businesses use to communicate and advertise their financial products and services (be it snail-mail or social media).
What points are made in the guidance note?
All important facts should be laid out clearly in an advertisement
- Warnings, disclaimers and qualifications (fine print) should be seen clearly or heard at a comprehensible speed.
- If an advertisement includes fees and costs, it should be an accurate estimate of what the customer will pay in total.
The information given to consumers should be consistent
- If an advertisement is published on multiple media channels, they should all contain the same information.
- The meanings for phrases and terms used across advertisements should stay consistent.
- The same terms should be used for information targeted towards investors and issuers.
Nothing should confuse, deceive or mislead people
- The context of statements and the way
the advertisement presents information should not be confusing,
misleading, or deceiving:
- if terms or conditions might change, the fact that they could change should be noted; and
- terms and phrases should be used in a way they are commonly understood.
- If a business is only licensed for some of the financial services it offers, it should make clear which services it is licensed for.
- If a service or product is limited to a certain type of customer, an advertisement should state this.
- A third-party's logo or motifs should only be used with the owner's consent. Nothing should imply a service or product is endorsed when it is not.
The information given should be balanced
- Important information (particularly about risk) must be included. The emphasis on risk and reward should be balanced so that a consumer's impression on a product or service is not biased.
- When making comparisons with
competitors, the platform should compare services which are alike,
and not make irrelevant comparisons just to make itself look good:
- The advertiser should identify the differences and explain why their product or service is superior.
- Advertisements should state past
performance only predicts, but does not indicate future
performance. To give consumers adequate information to make a
decision, the predictions should not be based on:
- unreasonable assumptions;
- selectively favourable information; or
- a short timeframe or a volatile time period in the market.
Stick to facts—no puff pieces
- Statements should be based on facts
and backed up with sources and not opinions.
- Testimonials or reviews should only be used sparingly if at all. They must be genuine and relevant to the service or good offered.
- Advertisers should give informative links to consumers so they can find out more if needed.
- Flowery and descriptive phrases
should be amended. Avoid:
- phrases like "rigorous checks" unless information is given on how the checks are rigorous;
- terms such as "inflation proof"; they can make consumers believe their investments are guaranteed; and
- saying an offer has "limited availability" if the offer is not actually limited.
- If an advertisement fails to meet the standards, the peer-to-peer lending service or crowdfunding service could be ordered to change the advertisement.
- The FMA can issue fines of three times the amount of the gain made or the loss avoided, NZ$1 million for an individual, or NZ$5 million for any other case.
P2P lending services and crowdfunding services are becoming popular in New Zealand and they are a relatively new regulated area of financial services. This guidance note can help businesses understand what is expected of them when they are advertising and informing their potential customers about investment decisions.
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.