Individuals working in a business can now face prison sentences and
unlimited fines if they break new rules relating to protecting the consumer
your clients. This applies to directors and managers as well as shadow directors
who may be involved in the business.
On 26 May 2008 the Consumer Protection from Unfair Trading Regulations 2008
came into force. The new regulations are concerned with the promotion, sale or
supply of products or services to ensure sales techniques are not unfair,
misleading or aggressive.
In conjunction with these regulations, the Business Protection from
Misleading Marketing Regulations 2008 were introduced to address comparative
advertising that creates confusion between the marketing of competitors or is
undertaken to damage another’s reputation in any way or abuse intellectual
property rights of others.
In the case of an accountancy firm the assertion could be made to one of your
clients that the current economic climate has driven up accountants’ fees,
thereby enabling you to increase the fees you charge to that client. However,
should your interpretation of the market conditions be materially inaccurate,
then such a statement could give rise to an offence that, for the first time, is
specifically mentioned and expressly prohibited under the new law.
The likelihood of being investigated for potential breaches has now
increased, as has the scope for being found guilty. Almost all businesses will
have to advertise their services or products and engage in activities to promote
sales. Whether dealing with new or existing clients, it is important that you
recognise the impact of the new regulations to limit potential breaches within
your firm and recognise how your clients might be affected.
The regulations consist of a general prohibition, a prohibition against
misleading and aggressive practices and a further 31 specific practices that are
forbidden in all circumstances. Highlighted below are some of the most relevant,
which you need to look out for:
- Passing on materially inaccurate information on market conditions:
persuading a client to instruct those with higher levels of expertise, and
therefore costs, under the false impression that current events necessitate a
higher level of service and experience, would be in breach of the regulations.
- Claiming to be a signatory to a code of conduct when the trader is not: for
example, members of the Association of Chartered Certified Accountants (ACCA),
who do not comply with the code of practice, may be in breach of the regulations
and subject to the penalties imposed in addition to any action taken by the
governing body of the ACCA.
- Advertorials that do not make it explicitly clear they are advertisements:
an advert must not imply that it is an unbiased review of a product or service.
- Making persistent and unwanted solicitations: this may be applied to cold
calling and so could have severe ramifications for the numerous businesses that
adopt such marketing tactics.
- Indicating that a product will only be available or listed at a discount for
a limited time: persuading a consumer to make an immediate decision and
therefore depriving them of the opportunity to make an informed choice.
This last point in particular could have a significant impact, as many
promotions or offers place great emphasis on their limited availability.
The authorities are compelled to enforce the regulations. You can therefore
report the unfair practices of your competitors and the prosecuting authorities
will be obligated to order an investigation. And, given that smaller firms will
no longer have to shy away from bringing claims against their rivals, due to a
lack of available funds for litigation, the number of investigations will
It is worth mentioning that legal advice should always be obtained before
reporting any breaches of your competitors, to help minimise the risk of
repercussions. If the authorities wrongly seize records or goods as part of an
investigation, compensation can be sought from the party that reported the
possible breach. The risk of liability when reporting a business therefore needs
to be assessed and you should always err on the side of caution.
A partner, director, manager or other familiar officer can be prosecuted if
found to have conspired in one of the new offences. If the case is heard at the
Crown Court, you could be liable to an unlimited fine and imprisonment for a
maximum of two years. Prosecutors can also seek and obtain injunctions.
An investigation alone can have devastating consequences, irrespective of
guilt. An enforcement officer has the power to enter business premises during
reasonable hours to conduct an inspection. Copies can be made of any documents
and goods or records even seized if thought necessary to prove a breach. The
time taken to deal with such an investigation could have a significant impact on
The Office of Fair Trading has an obligation to publicise the result of any
prosecution and so business reputations are at risk.
The penalties for breaching the regulations and consequences of an
investigation alone mean that ensuring complete compliance should be at the
forefront of your objectives.
Caution should be taken before reporting competitors’ potential breaches to
ensure there are no repercussions upon you or your firm. An understanding of
these regulations is therefore beneficial in not only safeguarding your own
firm, but also in recognising the impact it may have on your clients.
Beware the shadows
- A person who is not a director of a company but who nevertheless gives i
nstructions (rather than professional advice) upon which the directors are
accustomed to act is classed as a shadow director.
- A person not officially appointed a director but whose opinions are
influential in the company’s decision making process.
- Shadow directors assume the responsibility of directors under company law
even though they have not been formally appointed as a director of the company
Hugh Smith is a partner and head of the litigation and
dispute resolution team and Stuart Carson is a trainee
solicitor at law firm
HMRC breaches client confidentiality; and partner profits fall at EY. These stories and more discussed in Friday Afternoon Live
Two new audit partners have been appointed at the firm BDO in its audit practice following continued growth and investment
Changes to the tax system is urged to support the growth of entrepreneurs, found a report from the Grant Thornton UK, the Institute of Directors, and the Prelude Group
Six new partners have been revealed by top ten firm Mazars