What Are the Risk Warnings That Must Be Contained in UK Promotions?
In a time when consumer protection is of growing focus, recent regulations have introduced mandatory risk warnings in promotional materials. These changes, spearheaded by the Financial Conduct Authority (FCA), aim to enhance transparency and safeguard investors, particularly in high-risk investment areas like cryptoassets.
The need for such regulations has been underscored by reports highlighting numerous breaches of these new rules by firms.
This article offers a comprehensive overview of the risk warning requirements, but also their impact on user experience (UX) design across platforms. Ultimately, we will look at how to reconcile these new risk warnings with a positive and slick customer experience.
The Need for New Rules
The introduction of stringent promotion rules by the FCA shows a maturity in the regulatory environment of financial services, particularly in the high-risk investment sector - it’s becoming more inclusive of alternative investments.
This move is not without reason. The financial world has witnessed a surge in the popularity of cryptoassets, accompanied by an increase in promotional activities that often downplay the inherent risks. Such scenarios have not only misled consumers but also heightened the potential for significant financial losses.
Reports reveal a concerning pattern: numerous financial firms have breached these new marketing rules. These violations underscore a widespread issue—the lack of clear, fair, and non-misleading information in financial promotions.
The FCA's response, through these new rules, aims to address this gap by mandating explicit risk warnings in promotional materials. This regulatory action is a direct response to safeguard investors, ensuring they are well informed about the potential losses associated with high-risk investments like cryptoassets.
Detailed Overview of the Risk Warning Rules
The Financial Conduct Authority’s new changes, which have already come into effect, have introduced a new classification of investment products under its financial promotions regime.
Non-mass Market Investments (NMMI): These include Non-Mainstream Pooled Investments and Speculative Illiquid Securities. Financial promotions of NMMIs must not be communicated to retail investors.
Restricted Mass Market Investments (RMMI): This category includes Non-Readily Realisable Securities, Peer-to-Peer agreements, and qualifying cryptoassets. Mass marketing of RMMIs to retail investors is permitted under specific conditions.
Readily Realisable Securities (RRS): These are listed or exchange-traded securities, with no restrictions on marketing to the public.
Key Restrictions and Requirements
Ban on Incentives: Financial promotions for RMMIs must not offer any incentives to invest, such as bonuses, cashback, or free gifts.
Risk Warnings: A prescribed risk warning must be included (see the UX section for more detail). Personalised risk warnings are also required for direct offer promotions involving RMMIs. The format and wording may vary depending on the nature and location of the promotion, but contrast and design must be sufficient—this is not a matter of small print.
Cooling-off Period: A minimum 24-hour cooling-off period is mandated for new consumers who request to see a direct offer financial promotion, allowing them time to reflect on the investment.
Approving Financial Promotions from Unauthorised Persons: Firms approving promotions from third parties must require written quarterly attestations from the unauthorised person, confirming no material change to the promotion or explaining any compliance changes.
Client Categorisation: The current rules permit promotions relating to NMPI to be communicated to certain exempt categories, like sophisticated investors and high-net-worth individuals.
Adapting UX Design for Compliance
The recent regulations by the Financial Conduct Authority (FCA) on financial promotions, especially regarding high-risk investments, necessitate a nuanced approach to User Experience (UX) design. As firms integrate the required risk warnings and comply with the cooling-off period mandates, the challenge lies in maintaining an engaging yet compliant digital interface.
According to the new rules, a promotion must include a disclaimer:
"Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more"
This needs to be bold text with "Take 2 mins to learn more" underlined and in its own border. If it’s on a website or app, it should be at the top of the page below any other fixed elements. Design elements must not reduce prominence, such as a font colour and background colour that don't sufficiently contrast.
Here are some ways to balance compliance with user experience and branding:
Platform-specific UX Strategies
To maintain a coherent and efficient user experience (UX), it's important to use a consistent design language across all platforms. This consistency helps users seamlessly navigate different digital environments, whether on mobile apps or websites. However, each platform demands unique approaches to integrate the necessary risk warnings stipulated by the FCA without compromising the overall user experience.
Users accessing financial services via mobile apps generally seek quick, easily digestible information. In this context, integrating risk warnings effectively calls for a delicate balance. Interactive modals are an excellent tool for this purpose. When a user reaches a critical decision point, such as the moment before investing, a modal can appear summarising the key risks in a concise, understandable manner. These modals can be non-intrusive yet impossible to ignore.
Unlike mobile app users, those visiting financial service websites often have a greater tolerance for detailed information. This platform allows for more in-depth communication of risks. Utilising sidebar widgets or dedicated sections on the website can provide users with comprehensive details about the risks involved in their potential investments. Expandable text fields are particularly effective here.
Nevertheless, the bold risk warning (see above) on promotions must be at the top of the site below any fixed elements.
A user might begin their journey on a mobile app and switch to a desktop website for more detailed research. The transition between these platforms should be fluid, with consistent UX elements and design language.
Enhanced Risk Warning Visibility and Engagement
Risk warnings are not just about doing the bare minimum. In fact, this is one way to risk noncompliance, as well as customers’ trust. Further, risk warnings that are not in line with the branding and UX of the current site will not be conducive to a seamless experience that makes sense for the user. Instead, organisations should lean into regulatory demands by making it their own.
Graphical Data Visualisation
One of the most effective ways to communicate complex information, like financial risks, is through graphical data visualisation. This should be in addition to the mandated risk warnings; you can present related risk data through charts and infographics for educational purposes and better comprehension.
Incorporating interactive elements into UX design can significantly enhance user engagement. Features such as sliders that visualise the impact of different risk levels and interactive questionnaires to gauge a user's risk tolerance can be effective tools.
Tailoring the UX to individual user needs can greatly enhance their engagement with risk warnings. Personalisation could be based on the user's investment history, risk tolerance level, or preferred method of information consumption. For instance, a more experienced investor might see a condensed version of the risk warning, while a novice might receive a more detailed explanation.
Balancing Compliance With User Experience
Information Hierarchy and Accessibility
Place the most critical elements, such as risk warnings, prominently at the top, but without overshadowing other important content. This can be achieved through an intuitive information hierarchy that guides users naturally to compliance elements while still allowing easy navigation to other sections. And of course, ensure accessibility for all users, including those with disabilities. This is where contrast and colour choice become important.
Cool-off Period Integration
The FCA mandates a cooling-off period for certain financial promotions, which can be integrated into the UX in a user-friendly manner. For example, after expressing interest in an investment, users could be presented with an interactive timeline showing the cooling-off period. This could be accompanied by educational content or interactive elements related to the investment.
User Testing and Feedback Loops
Regular user testing and feedback mechanisms are essential to refining UX. This includes A/B testing different versions of risk warnings or compliance messages to see which are most effective while maintaining user engagement (but ensuring the base message remains the same). Experiment with three visual designs that are all sound in compliance and could then be analysed to see which one is generating the best feedback and lowest bounce rate.
Future-proofing UX Design
Regulatory Changes Adaptability
The financial regulatory environment is fast-changing, and UX design should be agile enough to accommodate this. This involves creating a flexible design framework that can easily integrate new compliance requirements - or quickly modify existing ones. A modular design approach, where elements like risk warnings can be updated without overhauling the entire UX, is the way forward.
Integration With Overall Branding
The integration of compliance elements into UX design should be in harmony with the firm’s overall branding and aesthetic. This ensures that even when delivering mandatory risk warnings or regulatory information, the user's experience feels cohesive and aligned with the brand's identity. In other words, it doesn’t feel like an alien import of HTML from some ageing regulatory body site.
The Broader Impact on the Financial Services Sector
The FCA’s enhanced financial promotion rules have had ripple effects on financial services already. These rules have caused a shift in how financial services approach marketing and consumer engagement - particularly those deemed to be high risk.
One of the most immediate effects has been the increased scrutiny of financial promotions, resulting in a considerable number of promotions being amended or withdrawn. The FCA's interventions in the third quarter of 2023 led to 5,310 promotions being amended or withdrawn by authorised firms. This action highlights the FCA's commitment to ensuring that financial promotions are not misleading.
The inclusion of cryptoassets within the scope of the UK FCA's promotion regime has been another major development. This means that firms which intend to promote cryptoassets in the UK will be registered (or authorised) by the FCA. Alternatively, a popular option is that an authorised firm can approve their marketing, which is enough to ensure compliance.
The rules require firms to ensure people have the appropriate knowledge and experience to invest in cryptoassets and to put in place clear risk warnings. Of course, this isn’t just helping newcomers (and arguably all cryptoasset investors are newcomers given the infancy of the technology), but it’s harming those that relied on consumers taking misguided risks.
In addition to these specific actions, the FCA's overall approach has begun to include broader considerations such as sustainability and consumer protection. The introduction of the anti-greenwashing rule, set to take effect on 31 May 2024, will require all authorised firms to ensure that sustainability claims in communications and financial promotions are fair and not misleading (more on this later).
In conclusion, the new regulations and risk warnings brought in by FCA are in response to the growing market of high-risk investments, along with the previously growing rate of scams and misguided investments.
When it comes to promotional rules, they shouldn’t be looked at as obstacles, nor should you make an attempt to minimise their impact on your site. By integrating them into your branding strategy, along with a responsive experience across all platforms and a clear information hierarchy, they can become a part of the user’s experience in a positive way. To measure this, feedback and A/B testing can be exercised with different designs.
For more information and help with cryptoasset compliance, please contact a member of the Englebert team. We can assist you in developing a strategy that complies with new promotional regulations, and ensure you build trust with both the FCA and your community.
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