Styperson POPE

Strategy & Compliance for Investment Firms

Preparing & Verifying Financial Promotions

Writing and approving financial promotions is an extremely important part of any authorised firm’s work, whether they contain information on clients or on the firm’s own services. The FSA lay down detailed rules about financial promotions and the circumstances in which it is necessary to produce a formal prospectus.  For an ordinary (non-prospectus) financial promotion, the most far reaching necessity is that it must be “clear, fair and not misleading”.

The quality and accuracy of information contained in financial promotions is a key part of the commitment every firm must make to “treating customers fairly”. Creating this ‘firm-wide culture’ remains an important focus for the FSA.

Unregulated Collective Investment Schemes
Often, Operators of unregulated collective investment schemes will bolt on their standard regulatory wording (sometimes making the mistake of thinking this acts as a ‘disclaimer’) but it is just as important to ensure that the document as a whole contains the relevant details, presented in the right way and that the process of verification has been appropriately thorough,

This is the weak point for many Operators because it is their responsibility as an authorised firm and if a scheme fails to perform in the way the information memorandum or promotional flyers suggest it will, it is these financial promotions that investors (and their litigiously-minded lawyers) will turn to first.

Corporate Finance
For company fundraisings, documents tend to be less focussed on future performance but to have more information on a company’s track record and the attributes of the current management, product and market. These statements of fact must be examined carefully and whilst firms might want to ask companies to warrant the accuracy of the information the provide or indemnify the firm against the effects of misleading information being given, firms must not use these to replace a critical examination and verification of the information they are providing to potential investors.

Unauthorised Firms
There are a number of unauthorised firms operating within exemptions to the regulated activity order and this means that the FSA’s rules on the preparation of financial promotions do not apply to them (although, of course, the laws and orders regarding the communication of financial promotions still do). These firms must consider the common law implications of giving misleading information which have much the same effect as the higher-level rules from the FSA.

Verifying Financial Promotions
If your firm’s name appears on the document, don’t think that a general disclaimer of responsibility is going to protect you from the consequences of inaccurate information or an inadequate process of verification. Of course, firms can only go so far and it is impossible to be absolutely certain that every thought within the IM (which will often be an opinion or a forecast) is accurate. Firms must however take all the steps they reasonably can to substantiate the material facts, ensure that the opinions are honestly held, and check that the forecasts are not misleading.

Should the worst come to the worst, it is the robustness and thoroughness of this verification process which will protect the firm and its Directors from litigation.

StypersonPOPE has considerable experience of preparing, examining and challenging financial promotions (and, unfortunately, in examining promotions made by others which are coming under attack from lawyers). If you would like to discuss the preparation or verification of financial promotions, please call or e-mail Simon Webber, StypersonPOPE‘s Managing Director.

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