guidance through metaphor? January 15, 2011Posted by Bradley in : disclosure , add a comment
The FSA is consulting on guidance on financial promotions. Specifically, the FSA is concerned with advertising by financial services firms. The FSA describes such advertising as the firm’s “shop window”:
In the financial services sector, financial promotions (we shall use the term here interchangeably with advertising or adverts) are a firm’s shop window. And, just as consumers go ‘window shopping’, they use financial advertising to shop around. This is particularly true of the internet.
If shop windows were vigorously regulated this might make some sense. Later the document talks about the consumer’s “journey” through a firm’s website:
When you comply with advertising rules, you are enabling consumers to make informed decisions. No one wants to trick consumers into buying something that is not right for them! In seeking to give consumers a clear and fair impression of your product, consider their ‘journey’ through your website, or how their eye might run over a press advert. To explain what you have to offer to them, this journey must be clear, while giving them fair and not misleading information along the way.
And then firms are cautioned not to serve “risk sandwiches” to their customers:
Usually unhelpful, the ‘risk sandwich’ comprises a section on benefits, followed by a section on risk warnings, followed by another section on benefits.
If your fund invests overseas, for example, you could talk about the currency risk at the same time as introducing the overseas feature of the fund. Be careful not to diminish or obscure important statements or warnings: that’s a creative challenge. But how you structure your communication – again within the framework of the rules – is up to you. And how much detail you go into depends on the advert – from a website, where you have almost limitless space, to a ‘teaser’-type ad. But remember that all promotions must be balanced and therefore stand-alone compliant at each stage.
I’m not sure what any of these metaphors adds to the message the FSA wants to convey, or why the FSA thinks they improve the “guidance”. The term risk sandwich seems to be used by the FSA more than anyone else or at least more than anyone else with a similar google ranking. And surely the issues about allowing consumers to assess risks are about more than avoiding “risk sandwiches” – there’s some danger that the requirement to “explain products and services clearly and give consumers fair and clear information, which is not misleading” is seen as being reduced to slogans, despite the FSA’s warnings that consumers avoid what they do not understand and that the FSA will be focusing attention on firms which don’t take their financial promotion obligations seriously.
news on egg recall August 21, 2010Posted by Bradley in : disclosure , comments closed
Why does the BBC’s story on the US egg recall link to the US Egg Safety Center (an industry source) for information on which eggs have been recalled rather than to the list available from the FDA (a government source)? Unsurprisingly, the US Egg Safety Center’s announcement contains reassurances which don’t appear on the FDA list, such as “Less Than One Percent of All U.S. Eggs Affected” and:
The chance of an egg containing Salmonella Enteritidis is rare in the United States. Several years ago, it was estimated that 1 in 20,000 eggs might have been contaminated, which meant most consumers probably wouldn’t come in contact with such an egg but 1 time in 84 years. Since that time most U.S. egg farmers have been employing tougher food safety measures to help protect against food-borne illness. Chief among these methods are modern, sanitary housing systems; stringent rodent control and bio-security controls; inoculation against Salmonella Enteritidis; cleaning and sanitization of poultry houses and farms; and testing.
not a surprise – evidence that bank financial statements are misleading September 28, 2009Posted by Bradley in : disclosure , comments closed
Harry Huizinga & Luc Laeven, Accounting Discretion of Banks During a Financial Crisis, IMF Working Paper 09/207 (Sep. 2009):
In the present crisis, the financial statements of banks appear to overstate the book value of assets to the point of becoming misleading guides to investors and regulators alike.. Thus, the present crisis can be seen as a ‘stress test’ of the accounting framework that reveals that book valuation need not always reflect the best estimate of asset value, especially at a time of sharp declines in market values. Accounting reforms announced so far and discussed in this paper, however, seem to go in the direction of increasing the gap between book and market values. This may be testimony that bank interests weigh heavily in this debate.