Mobile promotion costs Cantor Index £70,000 penalty

Weak procedures for prior approval of financial promotions at spread betting company, Cantor Index, have resulted in a £70,000 FSA fine. Although the firm’s Compliance Manual stated that all marketing copy should be approved by compliance prior to release, referral by email without a central master record failed to provide any guarantee that clearance was sought, or logged if given. The firm’s senior management had not ensured that the appropriate approval procedures were in place and that they were monitored systematically. The FSA notes that the high risk nature of spread betting, in which the consumer may lose far more than his initial stake, makes it essential that any financial promotion refers to the possible downside in a “clear, simple and prominent manner”. The ‘Free Xda’ campaign launched Cantor Mobile in September 2003 - a handset that featured both computing and telephone facilities and enabled the subscriber to spread bet in real time. The device was given away ‘free’ on the basis that the customer would place at least a minimum value of bets within nine months of account-opening. The campaign took the form of flyers, posters at railway stations and advertising in the popular press, which, the FSA says, ensured that the offer would be seen by less experienced investors. It notes that “although investors were required to agree to terms and conditions containing risk warnings and confirm that they had read and understood them, Cantor Index could not assume that investors would actually read such warnings.” The regulator adds that the firm should have focussed more closely on whether less experienced investors understood the risks they assumed. In setting the penalty, the FSA took into account that no customer had lost money and the firm had taken remedial action: it withdrew the ‘Free Xda’ advertising and introduced measures to confirm inclusion of risk warnings in future financial promotions; Cantor Index wrote to 304 clients whose decision to open an account may have been influenced by the Xda offer and gave them the opportunity to close their account and return the handset at no cost; and undertook an internal audit review, which identified flaws in its procedures, since rectified, to approve financial promotions, which indicated “medium to high” risk that compliance might not sign off on the copy before publication and that it might not feature appropriate or any risk warnings. If the firm had not been open and cooperative during the investigation, the penalty would have been “significantly higher”, says the Final Notice.