UK: Online Financial Promotions

Last Updated: 15 April 2008
Article by Andy Moseby

According to recent reviews carried out by the FSA, a quarter of all financial advertising on websites reviewed failed to meet the FSA’s financial promotions standards and many firms’ sponsored links were found to mislead consumers.

This edition of Corporate Clips looks at the pitfalls of making financial promotions on the internet generally as well as providing a reference guide to the financial promotion regime.

Scope of Website Communications

The financial promotion regime is intended to cover communications in any form, so communications published on websites are subject to the same regulations and exemptions as communications made in any other format. However, this "media-neutral" position can cause difficulties in reality. Hard copy documents have a traceable source location and geographically certain points of delivery, and it is relatively straightforward to restrict access to people in certain jurisdictions by not posting material to them.

The internet, on the other hand, is accessible and receivable worldwide and the physical point at which information was disseminated is unclear – is it the location of the person uploading the information? the location of the server on which such information is uploaded? the location of the server used by the recipient? the physical location of the person viewing the information? or any of these?

Potentially, then, communications made via websites may be subject to the regulations of numerous jurisdictions. Helpfully, the US Securities and Exchange Commission has issued guidelines which state that US regulations will not apply if there is a prominent disclaimer on the website setting out that the investment is not open to US persons and that procedures are in place to prevent sale to such people – such as obtaining evidence of non-US residence (a similar policy statement has also been issued by the Australian Securities and Investments Commission).

FSA Website Review

The form of many online communications has also been criticised. In the FSA’s recent review, 25% of websites considered were chastised for providing inaccurate information, not clearly presenting risk warnings and burying key information – such as fees or exclusions – within the website or in separate FAQ sections.

Examples of good practice given by the FSA include:

  • presenting information in an accurate, clear and balanced way;
  • enabling the customer to access easily key information (for example, presenting both the benefits and drawbacks of a product in close proximity to each other); and
  • placing risk information prominently on the first page of the website and fixing the information so that it remains on the screen even if the user scrolls up or down.

The FSA will be carrying out a further review this month and promises to take "direct action" with any firms who continually fail to meet the required standards.

Sponsored Links

Sponsored links – text-based advertisements returned by search engine – may also be financial promotions and so must be clear, fair and not misleading. The difficulty here is to be able to comply with FSA rules yet still attract customers when working with an extremely limited number of characters. Google’s AdWords service allows a headline and two lines of text yet imposes a maximum of just 95 characters.

The FSA specifically criticised advertisements which promise products at a certain price or special discounts or savings which may not be available to all recipients.

Hypertext Links and Banner Advertisements

Hypertext links may fall within the financial promotion regime if the link itself (rather than the site it links to) is a financial promotion or if the page containing the links is an inducement to click the relevant link with a view to the user engaging in investment activity.

A true links page may, however, be able to take advantage of the "mere conduit" exemption (see reference guide below for further information about useful exemptions).

Banner advertisements are clearer cut, as they are likely to be considered to be inducements per se. Like any other advertisements, whether they fall foul of the financial promotion prohibition will depend on whether their contents are an inducement to engage in investment activity.

Further Developments

As part of a wider review of the regulations that govern how authorised persons conduct investment business, the FSA has recently produced a new set of business standards that implement the Markets in Financial Instruments Directive (MiFID) and clarify the requirement for all communications to be fair, clear and not misleading.

HM Treasury has committed to reviewing the financial promotion regime (along with the exemptions) in Summer 2008, with a view to conducting a three-month public consultation starting in Spring 2009.

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Financial Promotion: A Reference Guide to the Prohibition and Useful Exemptions

The General Prohibition

No person must, in the course of business, communicate an invitation to engage in investment activity, unless the contents of the communication have been approved by an authorised person or the communication is otherwise exempt. The restriction is defined widely to cover pretty much any activity in respect of investments - guidance on how to interpret the prohibition and phrases used in the main exemptions is set out in the Glossary below.

The general prohibition is set out in section 21 of the Financial Services and Markets Act 2000 (FSMA), but the details of exemptions from this restriction are contained in secondary legislation – mainly The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO). There are over 65 exemptions: this guide focuses on the main useful categories.

Any person in breach of the general prohibition is committing a criminal offence and may be liable to a fine, up to two years’ imprisonment or both.

Agreements entered into as a result of an unlawful financial promotion are potentially unenforceable and the person engaging in investment activity may be entitled to recover any money paid under the agreement and compensation for any loss. In addition, a communication of misleading or inaccurate financial promotion could result in a claim for misrepresentation, criminal liability under insider dealing legislation and/or civil liability under the market abuse regime.


Essentially, the financial promotion regime applies to all communications made to recipients in the UK and to all communications originating outside the UK if they are capable of having an effect in the UK. However, in certain cases EU legislation may affect how this general rule is applied. For example, communications made to investors in the UK about potential business under MiFID from a company based outside the UK will be regulated by that company’s home Member State and the UK financial promotion regime will not apply.

Indeed, it is entirely possible that a number of EU directives could apply to one particular financial promotion; in such circumstances, the person making the communication would be well advised to consider carefully how such communication might be regulated.

Application of the Exemptions

The financial promotion regime applies to both written and oral communications, but a distinction is made in many exemptions between real time and non-real time communications, and solicited and non-solicited real time communications (see Glossary below).

The general rule is that a greater number of exemptions apply to non-real time communications or solicited real time communications on the basis that recipients are felt to need greater protection in circumstances where they are being asked to react immediately or in "cold-calling" situations (which, except in very limited cases, cannot even be approved by authorised persons).

Exemptions can be combined in respect of different recipients, except where the relevant exemption specifically prevents this. A disclaimer to the effect that the communication is only being sent to a certain class of recipient falling into one of the exemptions (and a statement that anyone not falling into exemption should return the document) may go some way to show compliance with the FPO provided that the communication is "directed at" the group rather than "made to" a particular person (see the Glossary for the distinction).

In fact, for certain exemptions to apply, specific disclaimers must be added to the document.

One-off Communications

There is an exemption for "one-off" non-real time communications or solicited real time communications which are made to (rather than directed at) recipients. The communication will fall into the exemption provided it is tailored and individual in nature (counter-intuitively, it does not necessarily have to be an isolated event) and should not form part of an overall organised marketing campaign.

Examples include responses given to reader enquiries, questions raised in a website forum or individual one-to-one conversations.

In addition, a further exemption applies to "one- off" unsolicited real time communications. The same test as above applies, but in addition the communicator must reasonably believe that the recipient understands the risks involved and expects to receive the communication. This stretches the meaning of "unsolicited" somewhat and begs the questions of how the communicator can sensibly believe that the recipient expects to receive the communication whilst at the same time it remains unsolicited.

Certified High Net Worth Individuals and Self-Certified Sophisticated Investors

Non-real time or solicited real time communications are exempt if made to an individual whom the communicator reasonably believes to be a certified high net worth individual or a self-certified sophisticated investor.

However, this only applies if:

  • the individual has signed an appropriate statement (see below) within the period of 12 months prior to receiving the communication;
  • the communication contains appropriate risk warnings (or such warnings are given orally at the beginning of the communication); and
  • the communication is accompanied by statements that it is exempt on the grounds that it is made to certified high net worth individuals or self-certified sophisticated investors, that set out the relevant qualifications and that anyone in doubt about the investment should consult an authorised person.

In addition, the communication must only relate to investments in unlisted companies.

Amongst other things, the appropriate statement for high net worth individuals must include acknowledgements that:

  • the individual understands that by signing the statement he may lose significant rights;
  • he is a high net worth individual because he has had for the preceding financial year either an annual income of at least £100,000, or net assets to the value of at least £250,000 (except primary residence, life assurance policies and pension); and
  • he accepts that he can lose his property and other assets from making investment decisions based on financial promotions.

Similarly, the statement given by a self-certified sophisticated investor must include acknowledgements to the effect that:

  • the individual understands that by signing the statement he may lose significant rights;
  • he is a self-certified sophisticated investor because: (i) he is a member of a network or syndicate of business angels and has been for six months before the date of the statement; (ii) he has made more than one investment in an unlisted company in the two years before the date of the statement; (iii) he is working or has worked in the two years before the date of the statement in a professional capacity in the private equity sector or in the provision or finance for small and medium enterprises; or (iv) he is currently or has been in the two years before the date of the statement, a director of a company with an annual turnover of at least £1 million; and
  • he accepts that he can lose his property and other assets from making investment decisions based on financial promotions.

In order for the exemption to apply, the communicator must comply with the strict provisions of the FPO as to the nature of the risk warning. On written documents, such warning must be given at the beginning of the document in front of any other written or pictorial matter, be in a font size consistent with the rest of the text, be indelible, legible, printed in black bold type, surrounded by a black border and not be hidden or obscured by any other information.

In terms of the reasonable belief required by the communicator, it would appear from HM Treasury guidance that confirmation (including an oral confirmation) from a potential investor that he has a high net worth or self-certified sophisticated investor statement would probably be sufficient.

Mere Conduits

This exemption applies to passive communications providers such as postal services or telecommunication companies. A real time communication (whether solicited or unsolicited) is exempt if the communicator makes it in the course of his activity, the principal purpose of which is receiving and transmitting materials provided to him by others. It will only apply if the content of the communication is wholly devised by a third party and the communicator does not modify or control the content in any way.

Members and Creditors of Certain Bodies Corporate

Non-real time and solicited real time communications made by a company to people it reasonably believes to be its creditors or shareholder are exempt. This is a very useful exemption – without it communications by a company to its shareholders would otherwise fall foul of the financial promotion prohibition.

Participation in Employee Share Schemes

There is an exemption for communications relating to existing or proposed bona fide share schemes for the benefit of employees or former employees (and their families) where the communicator is the employer (or a group company of the employer). This applies to both unsolicited or solicited real time and non-real time communications but only in respect (essentially) of shares, bonds, warrants and options.

Sale of a Body Corporate

Unsolicited or solicited real time or non-real time communications by or on behalf of a corporate body, partnership or individual (or group of connected individuals) are exempt if the communication relates to a transaction to buy or sell shares which:

  • following the transaction would give the buyer 50% or more of the voting rights; and
  • each of the buyer and seller is a corporate body, partnership, individual or group of connected individuals.

FSA guidance suggests that even if it does not meet the above criteria, the exemption could still apply if it relates to a transaction entered into for the purposes of a share acquisition or disposal and day-to-day control of the company is transferred. The FSA acknowledges that this could equate to the sale of a minority holding if "the remaining shareholders represent a large number of small shareholders who it is reasonable to suppose will not regularly act in concert".

HM Treasury has recognised that, if read literally, the exemption could apply to public takeovers (which is clearly not the intention). Despite some criticism from commentators, there does not appear to be any clear intention to amend this exemption, although this may be one of the points covered by the proposed 2008-09 review.

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Financial Promotion: Glossary



"…in the course of business…"

HM Treasury has the power to define what this means, but currently has no plans to do so. Guidance suggests that this is given its "dictionary" meaning and requires a commercial interest on the part of the communicator but does not necessarily have to relate to the main business. For example, if a holding company sold one of its subsidiaries, that sale would be considered "in the course of business" even though the holding company is not in the business of selling subsidiaries.

The FSA takes the view that although it would cover individuals, it should exclude genuine non-business communications such as online forum posts or conversations between friends.


FSA guidance gives "communicate" a very wide scope – the FSA considers that all is required is a positive step taken to make the communication. This would include knowingly leaving a copy of a document where it is reasonable to assume that some will pick up copies act may act on them. It also includes "causing a communication to be made" – ie being responsible for the transmission of information even if that information has been prepared by a third party – and so extends to publishers and advertisement carriers as well as intermediaries (unless they are unaware: see Mere Conduit exemption above).

The FSA takes the view that it will not catch professional advisers preparing materials or advising clients on the financial promotion regime, however.

"…an invitation…"1

The FSA suggests that this is a communication which directly invites a person to do something which will result in him engaging in investment activity; ie there must be a casual link between the invitation and the engagement. It will therefore include invitations to treat, direct offer advertisements and promotions for instant dealing upon registration. It will not include general corporate advertising.

"…or inducement…"1

Another widely defined term which may cover any communication which influences behaviour. The FSA has described "inducement" in terms of a link in a chain where the intent is that the chain leads ultimately to engagement in investment activity. Giving instructions as to the mechanics of an adviser’s engagement will not amount to "inducement", and neither will general profile raising such as sponsorship or the production of tombstones.

"…to engage in investment activity."

"Engaging in investment activity" has a statutory definition (section 21(8) FSMA) of: (i) entering or offering to enter into an agreement the making or performance of which by either party constitutes a controlled activity; or (ii) exercising any rights conferred by a controlled investment to acquire, dispose of, underwrite or convert a controlled investment.

"Controlled activity" is defined in Schedule 1 of FPO and covers dealing in shares and securities, arranging deals, managing investments, advising on investments and virtually any financial or credit activity. Likewise, "controlled investment" (defined in the same Schedule) is widely constructed and includes shares, securities, loan notes, options, government and public securities, rights in certain pension schemes and many other financial or corporate instruments.

"Real Time" vs "Non-real Time"

"Real time" is defined in the FPO as "any communication made in the course of a personal visit, telephone conversation, or other interactive dialogue", whilst "non-real time" is anything else (such as a letter, email, or a communication contained in a publication, website or broadcast).

In applying the definition, there tends to be an emphasis on "interaction" – this can produce some strange results, particularly in respect of meetings or presentations which can have a variety of interactive elements (real time) and some non-interactive elements (non-real time).

"Solicited" vs "Unsolicited"

Real time communications are further sub-divided into "solicited" and "unsolicited". A real time communication is "solicited" where the communication (ie phone call, visit or dialogue) was initiated by the recipient or takes place in response to an express request by him. In all other cases, it will be "unsolicited" (for example, a speculative communication to potential investors).

"Made to" vs "Directed at"

The distinction between communications "made to" persons or "directed at" persons is important when considering the exemptions as some are only available if the communication is "made to" particular people. Written communications (for example, email) are only made to the addressed person (someone else reading it will not be communicated to) and, similarly, a telephone call or meeting which someone happens to overhear will not be deemed to be communicated to that casual listener. By comparison, if a communication is directed at recipients generally (for example, in a TV or radio broadcast or via a website), any person who reads it or hears the communication will be deemed to be a recipient.


1 HM Treasury during the consultation process took the view that "invitation or inducement" comprised of any communication containing a degree of incitement (as opposed to a presentation of the facts). The FSA suggests that the purpose of the prohibition is to regulate communications which have a promotional effect – ie those which seek to persuade the recipient to engage in investment activity. The test is considered to be an objective one – would a reasonable observer taking into account all the facts consider that there was an intention on the part of the communicator to invite or induce and regard the communication as seeking to persuade him to invest?

Note that this is a two part test which requires a positive assertion for each element: if a reasonable person would not consider that the communicator intended to incite him, whether it did or not is irrelevant. Therefore, if there is an express statement on the communication to the effect that it is not an invitation or inducement, it is compelling evidence (though not conclusive) that the communication is in fact not an invitation or inducement.

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.

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