FSA Rules On Past Performance Data In Advertising Finalised

by Carla Johnson, Investors Offshore.com

12 January 2004

The UK's Financial Services Authority (FSA) announced late last month that from 1 June 2004, standardised data must be included in advertisements from investment providers which refer to past performance.

The new rules, according to the regulator, are designed to prevent financial services firms from "cherry picking" data to present their past performances in a new light.

Under the terms of the recently released regulations:

• Where past performance information is used in advertisements, it must be accompanied by standardised data, set out in a table, showing discrete annual returns for the previous five years. These figures must be expressed as a percentage and will give consumers a better understanding of the volatility of the investment and how it has performed over a period of time.
• Where less than five years' performance is available, then a firm should give information for as many 12-month periods as possible, updated to the previous quarter. Firms should indicate (using dashes or an explanation) where there is no information available for the 'missing years.'
• Where data is available for less than one twelve month period, past performance information may not be included. This is because a period of less than a year will not give a 'clear, fair and not misleading' impression of longer term performance. However, this information will still be available to intermediaries and professionals because only advertisements aimed at retail investors are covered by the FSA's advertising rules.

The requirement for the inclusion of standardised data is just one element of an overall package put together by the FSA, with the intention of improving the way in which past performance data is used in advertising.

Other measures set to come into force in June include: improving the balance in advertisements by reducing the emphasis on past performance; strengthening the warning so that it appears in the main body of the advertisement, not buried in the small print; and preventing firms from making a link between past performance and the future.

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