Select Committee on Treasury Written Evidence


Memorandum submitted by the Advertising Standards Authority

1.  INTRODUCTION

  1.1  The Advertising Standards Authority (ASA) is the UK self-regulatory body responsible for ensuring that all ads, wherever they appear, are legal, decent, honest and truthful.

  1.2  The ASA is grateful for the opportunity to provide written evidence to this inquiry. Although the call for evidence does not specifically relate to advertising, we thought that the Committee might find it useful to receive some background information on the ASA regulatory system given the Financial Services Consumer Panel's recent survey of financial advertising and their comment, "It is a quirk of the set up that financial advertising is not covered by the ASA, and so consumers seem to get a worse deal, with the FSA offering no public scrutiny and pressure to make sure that advertisers keep to the rules in an area where it is all too easy to blind the consumer with seeming good news headlines. We would like this part of the FSA's work at least to open up with public naming and shaming of the worst offenders in breaking the advertising rules." [12]

  1.3  This submission aims to:

    —  provide a brief outline of the ASA system of advertising self- and co-regulation; and

    —  explain the ASA's role in regulating financial advertising and how it works with the Financial Services Authority (FSA).

  1.4  Further information about the ASA and the work that we do can be found at www.asa.org.uk

2.  ADVERTISING SELF- AND CO -REGULATION

  2.1  The ASA has been responsible for regulating non-broadcast (eg print, outdoor) advertising since 1962.  The ASA is recognised by the Government and the Office of Fair Trading (OFT) as the "established means" for enforcing the Control of Misleading Advertisements Regulation (1988) (as amended). The OFT acts as the ASA's legal backstop regulator for the purposes of these Regulations, which means that the ASA is able to refer those advertisers who are unable or unwilling to comply with the ASA to the OFT for statutory action against misleading non-broadcast ads.

  2.2  The success of advertising self-regulation was recognised in 2004 when Ofcom contracted-out the regulation of broadcast (TV and radio) advertising to the ASA system. Ofcom is the ASA's backstop regulator for TV and radio advertising.

  2.3  This contracting-out arrangement created a "one-stop shop" for advertising content standards in the UK. There are effectively two systems operating behind a single shop front: a self-regulatory system for non-broadcast advertising and a co-regulatory system for broadcast advertising.

  2.4  The ASA is responsible for policing three Advertising Codes. These are owned by the Committee of Advertising Practice (CAP), which owns and updates the British Code of Advertising, Sales Promotion and Direct Marketing (the CAP Code), and the Broadcast Committee of Advertising Practice (BCAP) which owns and updates the TV and Radio Advertising Standards Codes (the BCAP Codes). The three Advertising Codes can be accessed at www.cap.org.uk/cap/codes.

  2.5  Membership of CAP comprises trade associations that represent advertisers, media owners and advertising agencies. Membership of BCAP comprises broadcasters and trade associations representing advertisers and advertising agencies. [13]

  2.6  The system is based on a concordat between advertisers, agencies and the media that each will act in support of the highest standards in advertising. It is not a voluntary system.

  2.7  Having a single front-line regulator for advertising brings great benefits to consumers and business, which now only have to deal with one complaint handling body. It has also led to harmonised decision making in cross media cases (eg campaigns that run on TV, in the press and on billboards).

  2.8  The entire system is funded by the industry, not the tax payer, via a 0.1% levy on the cost of advertising space. The money is collected by two arms-length bodies, the Advertising Standards Board of Finance (Asbof) and the Broadcast Advertising Standards Board of Finance (Basbof).

  2.9  The ASA investigates complaints from both the public and industry about ads that appear to break the Advertising Codes.

  2.10  Complaints are investigated free of charge. The ASA accepts complaints by telephone, email, via the website or in writing. The results of the ASA's formal investigations are published weekly on www.asa.org.uk.

  2.11  Where possible the ASA will try to resolve complaints informally with advertisers, for example to correct obvious breaches or minor mistakes.

  2.12  In 2005, 2,241 ads were changed or withdrawn as a result of ASA action.

Sanctions

  2.13  The ASA's primary sanction is adverse publicity for those advertisers that break the Codes. The ASA publishes its rulings on a weekly basis and its adjudications receive a substantial amount of media coverage. Adverse publicity is damaging to most marketers and serves to warn the public.

  2.14  Other sanctions include: media owners and broadcasters refusing to run ads that break the Codes; removal of trading privileges, such as the Royal Mail bulk mailing discount if advertisers persistently flout the Codes, and as a final sanction advertisers who continue to breach the Code can be referred to the OFT for misleading non-broadcast ads. The ASA is able to refer broadcast licensees to Ofcom (under any aspect of the BCAP Codes) for regulatory action where necessary. Ofcom is able to levy fines and revoke licenses.

The effectiveness of the system

  2.15  The advertising self-regulatory system seeks to achieve compliance through a number of mechanisms:

    (i)  First of all, most broadcast advertisements are pre-cleared by the Broadcast Advertising Clearance Centre (BACC) and the Radio Advertising Clearance Centre (RACC). [14]Pre-clearance does not prevent the ASA from investigating a compliant about an ad.

    (ii)  CAP provides free pre-publication copy advice for non-broadcast advertisements in order to promote compliance with the Code. The Copy Advice team also provides up-to-date guidance through online help notes.

    (iii)  CAP and BCAP undertake monitoring and compliance work. Ads that are considered to breach the Codes may be investigated and brought before the ASA Council. Sector surveys may prompt sector-wide compliance work.

  2.16  The effectiveness of the system is illustrated by the high compliance with the rules. A survey of the national press in 2004 showed that 99.3% of ads complied. [15]

  2.17  The effectiveness of the system is further evidenced by the fact that very few advertisers have to be referred to the ASA's legal backstops for further enforcement action. For example, since 2000 the ASA has had to refer fewer than thirty advertisers to the OFT.

  2.18  Furthermore, the ASA, CAP and BCAP conduct research into advertising issues to ensure that the Codes and ASA decisions remain up to date and relevant to business and consumers.

  2.19  Finally, the aim of the system is to be transparent and to promote the highest standards in advertising by compliance with the Advertising Codes. The fact that ASA decisions are published and covered in the general consumer press and the trade press creates a greater awareness of the rules and means that the industry is better able to learn from ASA decisions.

3.  THE ASA'S RELATIONSHIP WITH THE FINANCIAL SERVICES AUTHORITY (FSA)

Non-broadcast Advertising

  3.1  Since the FSA assumed its full powers and responsibilities under the Financial Services and Markets Act 2000 (FSMA), the ASA has referred to the FSA complaints about financial claims in non-broadcast marketing communications where the complainants allege that claims about specific elements or characteristics of investment business, mortgages, general insurance and pure protection policies (eg term assurance) are misleading (including that they are unclear, unfair or misrepresentative) or make impermissible comparisons.

  3.2  All non-technical elements of non-broadcast financial marketing communications are, however, still subject to the CAP Code eg serious or widespread offence, social responsibility and the truthfulness of claims that do not relate to specific characteristics of financial products.

Broadcast advertising

  3.3  When the ASA became responsible for broadcast advertising on 1 November 2004, it acquired a general statutory obligation to consider all complaints about broadcast advertisements (TV and radio). This means that the ASA considers all complaints about financial broadcast advertisements, even when they concern technical matters of financial promotion that would usually fall within the FSA's remit (ie those claims that the ASA would refer to the FSA in non-broadcast marketing communications).

  3.4  The BCAP Codes contain various prohibitions for financial products. These include investments not regulated by the FSA (including tangible investments) and some forms of investment that amount to betting. The relevant Code clauses are attached at Annex 1.

Multimedia advertising campaigns

  3.5  In the case of multimedia campaigns, the ASA has agreed with the FSA that where it receives a complaint about a technical aspect of such a campaign that it will investigate all aspects of the campaign, ie both non-broadcast and broadcast advertisements.

  3.6  When the ASA investigates technical aspects of a broadcast or non-broadcast financial advertisement, it is able to seek assistance from the FSA.

CONCLUSION

  We understand that the FSA plans to move towards principles-based regulation, in line with Hampton recommendations on better regulation. In the light of this, we would be interested to know what will become of those advertising breaches in non-broadcast media that are likely to be considered too small for FSA action.

  I hope that this provides a succinct overview of how financial advertisements are regulated by the ASA. If you have any questions about this submission or require any further information on the work of the advertising self-regulatory system, then please do not hesitate to contact me.

Annex 1

THE BCAP TV CODE

SECTION 9: FINANCE AND INVESTMENTS

Background:

  (1)   The rules in this Section largely draw attention to statutory regulation with which all advertising must comply. However, selecting the most appropriate financial products or services normally requires consumers to consider many factors and television advertising is not well suited to communicating large amounts of detail. It is not, therefore, an appropriate medium for advertising some particularly high risk or specialist investments or any financial products or services that are not regulated or otherwise permitted in the UK under FSMA.

  (2)   The Financial Services and Markets Act 2000 (FSMA) unifies much of the structure of financial regulation in the UK by replacing previous legislation and merging existing regulators into the Financial Services Authority (FSA).

  (3)   The FSA is the regulator for the financial services industry and regulates conduct of business, including advertising, for investment products. It also regulates the advertising of insurance, including the activities of insurance intermediaries (eg motor, home and travel insurers).

  (4)   The FSA is responsible for the regulation of most first charge mortgage lending and selling. Mortgages that are not regulated are those secured on non-UK land, business premises with less than 40% residential occupation, and second charge mortgages. The FSA's Financial promotion rules set out in Mortgage Conduct of Business Chapter 3 (MCOB 3) in the FSA Handbook apply to qualifying credit promotions as defined under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO) and the FSA Handbook glossary.

  (5)   Unsecured lending, other forms of secured lending and some other credit activities continue to be regulated by the Consumer Credit Act 1974 (as amended) and the Consumer Credit (Advertisements) Regulations 2004.

  (6)   In this Section, unless otherwise stated, the terms "financial promotion", "authorised person" and "qualifying credit promotion" have the same meanings as in the FSMA and the FPO. Please note that the definition of a financial promotion is broad and includes, for example, advertising for deposits and insurance products.

  (7)   Advertisements for Spread Betting are unacceptable under 3.1(c) (Betting and gaming).

9.1  NON-UK ADVERTISING

  Advertisements for financial services which:

    (a)  are broadcast on Ofcom-licensed services that are aimed exclusively at audiences in EU Member States other than the UK and

    (b)  are not subject to the financial promotion rules of the FSA

need not comply with Section 9.  Instead they must comply with the laws and regulations of the relevant Member States.

9.2  LEGAL RESPONSIBILITY

  Financial promotions must comply with all legal and regulatory requirements

Notes:

  (1)   To quote the FSMA, a Financial Promotion is "an inducement or invitation to engage in investment activity, which is communicated in the course of business". It is, however, important also to refer to the FSA Handbook, in particular to the rules in Conduct of Business Chapter 3 (COB 3), MCOB 3 and Investment Conduct of Business Chapter 3 (ICOB 3).

  (2)   Legal advice, or general advice from the FSA, may be required concerning compliance with FSMA requirements. Please note that the FSA does not pre-vet promotions.

9.3  MISLEADING ADVERTISING

  Background:

  The ASA and BCAP will apply their usual standards to prevent misleading advertising (see sections 5) and require any significant exceptions and qualifications to be made clear (see rule 5.2.3). In addition, Financial Promotions must be "clear, fair and not misleading" as required by the FSA Handbook. Where appropriate, the ASA and BCAP will seek advice from other regulators when investigating possible breaches of the rules in Section 9.

  Unless advertisements subject to Section 9 are clearly addressed to a specialist audience and shown either on specialised financial channels or in breaks within appropriate financial programming, they must be considered to be addressing non-specialist audiences.

Note:

  No specialist knowledge should normally be required for a clear understanding of claims or references. For example, exceptions, conditions or expressions which would be understood by finance specialists must be avoided or explained if they would be unfamiliar to many viewers.

9.4  DIRECT REMITTANCE

  Financial promotions must not invite the direct remittance of money

Notes:

  (1)   It must not be possible to buy "off the screen" without further formality. There must always be an intermediate stage in which further information is supplied.

  (2)   See the BCAP Code for Text Services for exceptions to the rule for Ofcom-regulated text services.

9.5  UNACCEPTABLE CATEGORIES

    (a)  Except on specialised financial channels, the following categories of advertising are not acceptable:

(1)  advertisements for the issue of shares or debentures. Exceptions are made for advertisements announcing the publication of listing particulars or a prospectus in connection with an offer of shares or debentures to be listed on the London Stock Exchange or prospectuses approved for the purposes of the Prospectus Directive 2003/71/EC and permitted under FSMA.

(2)  advertisements recommending the acquisition or disposal of an investment in any specific company other than an investment trust company listed on the London Stock Exchange.

    (b)  Nothing may be advertised as an investment unless it is regulated or otherwise permitted under FSMA.

Notes to 9.5:

  (1)   Advertisements for Spread Betting are unacceptable under 3.1(c) (Betting and gaming). Please also note rule 3.2 (Indirect promotion) which prohibits advertising if a significant effect would be to promote a product or service that cannot be advertised in its own right.

  (2)   Advertisements for Contracts for Differences (except Spread Betting) are acceptable on specialist financial channels provided the products are available only to clients who have demonstrated through appropriate pre-vetting procedure that they have relevant financial trading experience. (For this purpose, a "specialised financial channel" is an Ofcom licensed channel whose programmes, with few exceptions, are likely to be of particular interest only to business people or finance professionals.)

  (3)   In this Code, "Spread Betting" and "Contract for Differences" have the same meanings as in the current glossary to the FSA Handbook.

Note to 9.5(b):

  Any advertising which implies that, for example, a collectors' item or some other unregulated product or service could have investment potential would normally be unacceptable. ("Investment" is used in its colloquial sense in this note.)

9.6  FINANCIAL PROMOTIONS

  Subject to 9.5(a), financial promotions are acceptable if:

    (a)  they have been approved by an "authorised person" as defined in the FSMA or

    (b)  they are exempt as set out in COB 3.2.5R, MCOB 3.2.5R and ICOB 3.3.6R

Note to 9.6:

  Advertising by a general insurance intermediary need not be approved by an authorised person if it is a generic promotion under the FPO. (This is usually where the advertising does not identify any particular insurer, insurance intermediary or product, so it will usually apply where the financial promotion refers generally to product types).

9.7  SAVINGS AND DEPOSITS

  (a)  References to interest on savings must be accurate at the time of transmission and the advertising must be modified immediately if the rate changes.

  (b)  Calculations of interest must not be based on significant unstated factors.

Note to 9.7(b):

  It may be necessary to refer to factors such as a minimum deposit, minimum deposit period or minimum period of notice for withdrawal.

  (c)  Advertisements must make clear whether interest is gross or net of tax.

  (d)  Where the interest rate is variable, this must be stated.

  (e)  Where the investment returns of savings products are compared (eg a unit trust is compared with a bank deposit) any significant differences between the products must be explained.

  (f)  Advertisements subject to Section 9 must comply with Code of Conduct on the Advertising of Interest Bearing Accounts which is published jointly by the Building Societies Association and the British Bankers' Association.

9.8  LENDING AND CREDIT

  The advertising of most credit or hire services is acceptable only where the advertiser complies with the Consumer Credit (Advertisements) Regulations 2004 and the Consumer Credit Act 1974 (as amended). The advertising of mortgages regulated by the FSA and secured loans of FSA regulated lenders is only acceptable where the advertiser complies with the FSMA and the FSA Handbook.

Notes:

  (1)   Credit advertisements that are not qualifying credit promotions must comply with Section 46 of the Consumer Credit Act and Regulations made under it. Where there is doubt about their applicability or interpretation, advice should be sought from the appropriate Trading Standards Department. Such advertisements that involve distance marketing must also comply with the Financial Services (Distance Marketing) Regulations 2004.  Other financial advertisements that are distance marketed will be covered by the FSA Handbook.

  (2)   Please note the Guidance for Debt Management Companies and other guidance issued by the Director General of Fair Trading.

9.9  FINANCIAL PUBLICATIONS

  Advertisements for publications (whether electronic or on paper) must make no recommendations about specific investments.

October 2006



12  
Press release available at: http://www.fs-cp.org.uk/press/ct_pr77.html Back

13   Membership of CAP can be accessed at www.cap.org.uk Back

14   Further information can be found at: http://www.bacc.org.uk and www.racc.co.uk Back

15   http://www.asa.org.uk/NR/rdonlyres/441DCCD4-9219-485C-BD63-3379401F941B/0/ASA_National_Press_Survey_2004.pdf Back


 
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