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The Banco de Portugal has announced a public consultation on the proposed revision of the rules for advertising financial products and services.
This initiative follows the significant evolution in financial advertising, particularly in light of digitalisation and growing financial innovation.
The proposed regulatory framework will update the existing rules from Notice No. 10/2008, aiming to enhance transparency and consumer protection in the financial sector.
The bigger picture
Overhauling of (or warnings about) financial advertising is not a new thing for financial regulators as they grapple with societies that are more online than ever before, and see more advertisements online than in other formats such as public transport and broadcasting.
In March, the UK’s Committee of Advertising Practice (CAP) published its advice on consumer credit advertising, while the Financial Conduct Authority (FCA) issued guidance on financial promotions via social media.
In 2022, the US Consumer Financial Protection Bureau (CFPB) issued an interpretive rule laying out when digital marketing providers for financial firms must comply with federal consumer financial protection law.
And in Lithuania, the central bank said during August that it was in the process of assessing whether the advertising of financial products does not mislead consumers after an issue occurred recently with pension funds.
In Portugal, meanwhile, the new draft under public consultation updates advertising rules for financial institutions, including payments and e-money firms. Banco de Portugal's aim is to ensure financial advertisements are transparent and provide essential information for consumers.
Key revisions include updated regulations on corporate credit advertising, account packages, and new character size requirements for ads, with these changes intended to reflect technological advancements and the diversification of advertising media.
The draft also requires institutions to report advertising materials, adapting this obligation for digital channels.
The consultation will remain open until October 17, 2024, and interested parties are invited to submit their contributions.
Why should you care?
As shown above, many jurisdictions are reconsidering their advertising rules when it comes to financial services and products.
As financial products grow more complex, regulators are focusing on ensuring consumers receive clear and transparent information, and the rapid growth of digital financial services has undoubtedly outpaced the traditional financial sector, meaning that consumers are now exposed to products and services that they may not fully understand, with regulatory frameworks for countering this threat not yet there.
With ads now primarily delivered through digital channels like social media and websites, new rules are needed to address specific issues, such as ad visibility and proper disclosures in smaller formats.
Meanwhile, the rise of targeted advertising and social media influence has increased the risk of misinformation in financial promotions.
This has meant stricter regulations are being introduced to ensure that advertisements remain factual and balanced, curbing the spread of misleading information.
Earlier this year, the FCA was bold in moving to bring charges against nine individuals in relation to an unauthorised foreign exchange trading scheme promoted on social media, for example.
The proposed regulations by the Banco de Portugal on financial advertising could have significant implications for e-money and payment institutions operating in Portugal.
These institutions, which have grown in prominence since the passage of the EU’s revised Payment Services Directive (PSD2), will now need to adhere to stricter advertising guidelines aimed at ensuring transparency and protecting consumers.
With the updated principles and rules, institutions will need to make sure their advertising practices provide clear, detailed information, especially when promoting services like payment solutions, digital wallets, and e-money products. This will be crucial for helping consumers make informed decisions.
One notable change involves stricter rules on the minimum size of characters used in ads and the prominence of key information.
For e-money and payment institutions, this could mean adjustments in how promotional content is displayed on digital platforms such as websites, mobile apps and social media.
Often, firms can use platforms like Instagram and TikTok as a way to advertise their products and services, but they may now need to consider how they present text on these advertisements, especially when engagement from consumers on these platforms is so rapid.
Ensuring that ads comply with the new visibility requirements might involve redesigning digital materials to meet these regulatory standards.
The new framework also increases reporting obligations, and institutions supervised by the central bank will be required to report advertising materials to the Banco de Portugal, regardless of the channels used.
This added requirement means that e-money and payment providers will need to invest more time and resources in documenting their advertising campaigns, ensuring they meet compliance standards, and ensuring these reports are ready to submit to the Mediterranean regulator.
Given that e-money and payment institutions heavily rely on digital platforms for marketing, the regulations reflect the growing importance of transparency in the digital advertising space.
These institutions will need to ensure that their advertising messages are clear and compliant, even in formats where space is limited, such as in the context of mobile-friendly layouts.
Failure to comply with these regulations could expose institutions to penalties or enforcement actions from the regulator.
