On 2 August 2023, HM Treasury launched an eight-week consultation regarding proposals to ban cold calls for consumer financial services and products. You can find our original article on the proposals here.
The paper states that it "explores how best to design and implement this ban to prevent scam calls from reaching the public, while allowing legitimate and beneficial communications from businesses to continue. The consultation also includes a call for evidence to collect information and data that will allow a more rigorous assessment of the impacts on businesses". The consultation paper does not include draft legislation, so the precise scope of the proposed ban is still unclear.
While the ultimate aim of the proposals (i.e. to minimise fraud) is of course to be commended, it is difficult to see how this ban will protect consumers to any meaningful extent in an environment where fraud is growing increasingly sophisticated. Notably, the draft impact assessment published alongside the consultation contains little detail on the likely benefits of any ban. Specifically, it notes that:
- "The benefits are dependent on the public being aware of the ban and no longer engaging with financial services cold calls.
- The extent of fraudulent cold calling is unknown.
- Criminals may switch to alternative methods of contact or fraud types.
- The reduction in the number of fraudulent investment cold calls may be limited. In the three months to June 2022, 22 per cent of UK adults said they had been cold called for pensions or investment advice despite the pensions cold calling ban."
With potentially limited effect on fraudulent activity, it is imperative that any ban and exceptions are proportionate to the impact on firms. Whilst the term "cold call" is particularly emotive, the call in question is an "unsolicited marketing call". Although email is by far the most common form of marketing communication, the use of unsolicited marketing calls is not uncommon for regulated firms. Firms who legitimately use this channel as a means of offering their products and services are already subject to robust controls in the form of data protection obligations, Financial Conduct Authority rules, and in some cases industry codes of practice. Fraudsters, by contrast, are not known for their scrupulous compliance with the law.
Potential exception - existing relationships
A ban on cold calling in relation to pension products is already in force. However, the ban does not apply to authorised providers if (i) the recipient has consented to receiving marketing calls; or (ii) there is an existing relationship with the recipient and they have not opted out of receiving such calls.
The consultation paper seeks views on a similar exception in respect of any broader ban. It suggests that this may apply in circumstances where an authorised firm and the recipient have an "established existing client relationship" (our emphasis added) and the relationship is such that the recipient envisages receiving cold calls.
The scope of any such exception will be crucial when considering the impact of any ban on firms. As emphasised above, the proposal refers to an "established existing client relationship" (in contrast to the existing pensions exemption which only requires an "existing client relationship"). It is not clear if this exception is therefore intended to be narrower, or exactly when an existing relationship will become "established" for these purposes.
In the context of a pension, an existing relationship may last for many years. The same is not true of other financial products where the relationship tends to be for a more limited period of time. For example, many individuals will have an annual insurance policy. We would therefore expect the impact here to be much higher on firms than for pension providers, as firms are more reliant on repeat customers.
Insurers may also have legitimate reasons to want to cold call persons who are not their customers but who they know may have a need for an insurance product. They may also wish to contact potential customers who have obtained a quote but not gone on to purchase the policy, or individuals who previously held a policy but have not renewed. Would insurers and brokers be prohibited from calling a customer whose policy has lapsed to check whether this was intentional or mere oversight, on the basis that there is no longer an existing client relationship with a lapsed policyholder?
This can be further contrasted with the restrictions in relation to email communications sent to individuals which apply unless the individual:
- has specifically consented; or
- is an existing customer who bought (or negotiated to buy) a similar product or service from in the past, and was given a simple way to opt out both when on data collection and in each subsequent communication.
The ban could also create unintended problems for regulated firms who acquire books of clients from other firms or from retiring advisers, as it may limit the ability of the acquiring firm to contact transferring clients after the date of the transfer.
What's next?
The consultation closes at 9:30am on 27 September, and we would advise regulated firms to share their views on the scope of the ban (and, in particular, the proposed exception and any potential harm to customers that could result from a ban) within this timeframe, either directly or via industry associations.
For more information about any of the issues raised in this briefing, please contact the below authors.
