Financial Services

FSPs should be aware that the way they advertise their business may constitute misleading and deceptive conduct, subjecting them to penalties. The principles of misleading and deceptive conduct in financial services determinations are similar to that in consumer law, incorporating the notion of puffery. Therefore, both consumers and providers must be aware of the potential for financial services misrepresentations in advice.

The representation claimed to be misleading must have a ‘factual character’ and not be a ‘mere exaggeration which was designed to attract attention’. The latter will likely be found to be puffery, which is not misleading or deceptive and will not attract penalties. This is evident through FOS Determination 271492, which references Mitchell v Valherie [2005] SASC 350.

The Trade Practices Commission provided guidance on this issue in 1991 in stating that ‘[t[he law does not prohibit imaginative advertising or the use of humour, cartoons, slogans, etc.’ Exaggeration or puffery may be used to attract attention, but this may be so self-evident that it is unlikely to mislead anyone; this will not contravene the law. The Trade Practices Commission goes further to say that ‘representations and claims that take on a factual character, particularly in quality and price terms, may amount to a breach.’

A representation will not be misleading or deceptive if it does not have a factual character. ‘Imaginative advertising’ through the use of a ‘slogan’ as suggested by the Trade Practices Commission in 1991 will be permissible. Several examples are seen in FOS determinations. A statement was made in FOS Determination 301069 in which an agent for the FSP claimed the FSP’s policy was the ‘best in the business’. This representation was found to be puffery as it was an exaggeration. Furthermore, in FOS Determination 284891 the opportunity to make ‘big money’ was regarded as mere advertising puffery.

The FOS also has examples of successful claims of misleading and deceptive conduct. This ground will be successful if the representation was made with factual promotional material, including information about past performances. For example, FOS Determination 217603 concerned misleading information on past performance. The Applicant’s complaint was that the FSP recommended a scheme and said that it would provide returns of 15% per shipping cycle, leading him to believe that the investment had a good history of performance, a legitimate record of past events and would provide good returns. However, the FSP did not disclose to him that another party would control his money; the Applicant only became aware of the other party when he was informed that an administrator had been appointed. Neither the FSP nor the other party was managing any of the risks associated with the scheme. The Applicant stated that, had he not invested via the FSP, he would have bought a house and put the rest of his money in the bank on term deposit. He had invested via the FSP because of the misrepresentation. The maximum of $150,000 was awarded including interest.

FOS Determination 271492 was a dispute concerning alleged misleading representations made by a company about the quality of its service. The Applicant’s position was that the company misrepresented the risks associated with its services. The company’s misrepresentation took the form of a graph about the company’s performance, an email about a successful trade, and a conversation with the FSP. The FOS determined that the FSP refund the Applicant’s subscription fee and pay compensation.

In summary, the way FSPs advertise their business may constitute misleading and deceptive conduct, subjecting them to penalties. Advertising material should be scrutinised to ensure accuracy to avoid financial services misrepresentations.

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This article was authorised by Warwick Heeson.



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