The Financial Services Authority came under fire yesterday after refusing to name 19 firms that were preying on consumers with misleading online advertising.

The chief City regulator reported that of 77 financial websites that it had investigated, 25 per cent fell short of its standards for accuracy, fairness and clarity. A sizeable minority of financial firms continued to mislead consumers online, it said, although there had been improvements since previous inquiries in 2005 and 2006.

It declined to name and shame the guilty firms, saying instead that it would carry out a fourth review in March 2008 and would take action if it found further failings then. Which?, formerly the Consumers Association, criticised the regulator for shielding the firms. “The FSA has a duty to protect consumers,” it said. It has argued before that rogue firms should be named and shamed to act as a deterrent and also in order to warn consumers so that they could avoid them.

The FSA insisted that it was prevented from naming firms under the confidentiality rules of the Financial Services and Markets Act. Ultimately, offenders can be named once they are found guilty under the complex and lengthy FSA enforcement process. FSA sources also argue that an initially forgiving attitude helps to build trust with regulated firms and makes them more open with officials.

Which? said: “The FSA is putting commercial interests above the interests of consumers.” As it moved towards more principles-based regulation, and away from prescriptive rules, it was even more important to “police by example”. It contrasted the FSA approach with that of the Advertising Standards Authority, which frequently names financial advertisers that mislead the public.

In its investigation of financial websites, the FSA found failings including:

–– Key information such as fees or exclusions “buried within the website” or placed in a separate compartment, such as Frequently Asked Questions.

–– Crucial consumer warnings skipped because prospective buyers are able to click directly from advertisement to application form.

–– Key information missed because consumers are not aware they have to scroll to bottom of an online page.

–– Wrong information published, including incorrect base rates and the promotion of special offers that have since been withdrawn.

–– More weight and prominence given to the advantages of a financial product than its potential drawbacks.

The FSA also revealed that some firms were misusing search engine companies, paying fees to appear high in the rankings when inappropriate key words or phrases were searched for. For example, a tied financial adviser paid to appear when “independent financial adviser” was searched for.

Through its enforcement process, the FSA has fined a handful of firms for misleading advertisements, including a £500,000 penalty against AXA Sun Life in 2004, £165,000 against Chase de Vere in 2003 and £70,000 against Cantor Index, the spread-betting firm, in 2004.

In January the FSA, which is responsible for consumer protection, said that more than half of 57 press advertisements for motor insurance were either unclear or misleading, but it declined to name the culprits.

Big claims and small print

–– One third of consumers surveyed by Which? said that they had seen a misleading financial advertisement in the past 12 months

–– Three quarters of respondents said that financial adverts were full of jargon and could be confusing

–– Last year the Advertising Standards Authority received 364 complaints about broadcast financial adverts and 663 about print adverts

–– The ASA has in the past two years upheld complaints against Barclays, Alliance & Leicester, Lloyds TSB, HSBC, the RBS-owned Churchill Insurance and NatWest

–– Over the past two years the Financial Services Authority investigated 930 cases of potentially misleading adverts, of which 60 per cent were quickly withdrawn

–– Banks, insurers and other financial services businesses spent £1.6 billion on advertising last year

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