For the second time in a little over a year, the Financial Conduct Authority (FCA) have warned the financial services industry and those working within it about the concerns it has in regard to the use of trading styles and names. So what exactly is the problem – and what can and can’t you do?
In this article we will explore how you can use different trading styles and web domains to your advantage as a way of marketing your firm and engaging with prospective customers more effectively, while also ensuring you are compliant with all the FCAs rules and regulations on the matter. To learn more about the FCA’s most recent updates to the governance around how you should be supporting your customers click here to have a read of our article explaining what consumer duty is and how it affects you and your business.
If you are already a PRIMIS appointed representative, you can also learn more about trading styles specifically by reading our guide which is available on The Hub, our designated broker portal.
What is a trading style?
Firms sometimes want to adopt a trading name or brand which is different to their actual registered company name. Usually this is to allow them to market or advertise themselves differently to a specific segment of their audience, or possibly to just use a different public facing name which is more eye catching or marketable.
Why is the FCA concerned about trading styles?
Broadly speaking there are three major reasons why firms using different trading names or web domains could pose a potential issue. These problems apply directly to the FCA’s existing governance rules but also to the potential harm they pose to customers.
- Some firms are incorrectly registering trading styles with the Financial Conduct Authority, while some are not doing so at all.
- Following on from this, the FCA are also concerned that trading styles might be used in order to mislead or deceive customers into believing their firm is capable of offering or providing something that isn’t true with benefits that won’t ever come to fruition i.e. a trading name such as ‘wewilldefinitlysaveyoumoney.com’.
- In some cases, the FCA believe that trading names aren’t in fact trading names, but rather distinct businesses that the authority should recognise in their own right, rather than as an extension of another brand.
Does the FCA need to know about trading styles?
The answer is a round yes! Trading styles need to be registered with the Financial Conduct Authority and they form part of the information relating to firms shown on the official FCA register. If you have a trading style that you need to register, our PRIMIS Broker Services team can help you, so that you can continue to stay on the right side of the industries’ rules and regulations. Its important to note that trading styles must also be removed from the FCA register as soon as they are no longer in use. Again, if you are an appointed representative of PRIMIS Mortgage Network, our Broker Services team can arrange this removal on your behalf.
Are web domains or email addresses different to my company name still a trading style?
They might be – it depends how you use them. Shortening or truncating your company name in a domain or mail address will not usually be a trading style unless you actually use that name as the official name of your business. Any use of domains and email addresses that might reasonably cause a customer to think that web page or address is a name of a firm would likely be a trading style as well, and thus would have to be registered as one. If you are unsure what constitutes a trading style then it is best to seek guidance.
Regardless of the above, web domains and email addresses must always pass the FCA ‘clear, fair and not misleading’ test in their own right. So domains or email addresses which convey information about your service would need to be compliant as they were financial promotions.
What types of trading styles can be used?
As with domain names, the usual FCA ‘clear, fair and not misleading’ rules apply to trading styles. Trading names/styles should not cause confusion regarding your firm or any other regulated/trading entity. So you couldn’t use a name that is too similar to another company. Similarly, firms must ensure that the trading style is legitimate and does not infringe on registered trademarks. Trading styles will not be authorised if they have the potential to cause communications to fail in meeting the FCA’s ‘clear, fair and not misleading’ requirements. This might (for example) because the name itself confers information about the products or services on offer that are untrue, which can’t be substantiated or which might confuse or mislead customers.
How can trading styles be used?
Trading styles should only be used as a way for firms to trade under a different name or brand. The FCA are concerned that sometimes trading styles shave been used in the industry to create ‘business within business structures’, whereby the trading style operates autonomously under the supervision or direction of management which is separate of the main firm. This type of structure is expressly not allowed by the rules. Where separate business structures are required these must be set up as distinct and separate ARs or directly authorised firms.
The activities occurring under a trading style could (for example) be conducted by a distinct and dedicated set of advisers or staff. However, those staff must remain under the day-to-day management, oversight and supervision of the Approved Person (or in sole trader structures, the practice principal) within the AR firms at all times. In short, the trading style must be under the direct control of the Approved Persons (or sole trader principal) and must be clearly integrated into the AR business. The financial risks and rewards associated with the trading style should sit with the AR and its approved persons.
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