There has been a surge in financial promotions on social media platforms, given the rise in opportunities to promote financial products on multiple platforms.. The Financial Conduct Authority (FCA) has launched a consultation on its proposed guidance on financial promotions on social media channels. The regulator has raised concern at the poor-quality of financial promotions on social media that can lead to significant consumer harm. Financial influencers (“finfluencers”) are seen to be targeting younger audiences and those more vulnerable to high-risk investments. The FCA has emphasised its Consumer Duty principle when considering the marketing campaigns of firms communicating with retail clients.
A “financial promotion” is any communication of an invitation or inducement which, if acted upon, would lead a person to carry on a controlled activity in relation to a controlled investment or acquiring, disposing or converting rights under a controlled investment. Section 21 of the Financial Services and Markets Act 2000 (FSMA) sets out restrictions on issuing financial promotions (the Financial Promotion Restriction) and there are specific conduct of business rules for firms to follow when approving financial promotions it issues. The communication promoting financial products could be in any form (for example, an email, a website page, a presentation at a seminar). For social media, the FCA has set out that any form of communication could be a financial promotion if it includes an invitation or inducement to investment activity, even when communicated through private social media channels, such as Discord or Telegram.
Key stakeholders that the FCA proposed guidance is relevant to:
- Consumers and consumer groups
- Firms communicating or approving financial promotions on social media
- Industry groups and trade bodies
- Influencers and unauthorised persons communicating financial promotions on social media
- Social media platforms
- Overseas firms communicating financial promotions to UK consumers on social media
Key takeaways from the FCA’s proposed guidance:
Emphasis on Financial Promotions rules:
The FCA has given further guidance on non-compliant financial promotions.. and has reminded social media users that all communications in breach of the Financial Promotion Restriction, including those made through social media, constitutes a criminal offence and is open to enforcement action by the FCA including prosecution and imposition of an unlimited fine. The guidance highlights that only authorised persons can communicate financial promotions or approve financial promotions for unauthorised firms and that such financial promotions need to be fair, clear and not misleading. The danger of social media financial promotions is that they can reach a wide audience very rapidly, and as such can be widely shared to a non-intended recipient. Firms, as well as social media influencers, can be in breach of financial promotions rules when sharing communications on online platforms. The FCA gives examples of both compliant and non-compliant social media financial promotions. The regulator also highlights the responsibility of platforms to prohibit the advertising of some products and services, including debt assistance services.
Third-party sharing or forwarding of communications is also in breach of the financial promotions rules, and third party sharing does not stop the breach of the original non-compliance. The FCA is particularly strict on the sharing of content that induces or invites the consumer to engage in an investment or claims management activity. Unsolicited promotions, such as following a firm on Twitter and Facebook, will be distinguished by real-time and non-real time promotions, with channels such as live-streams or gaming streams being subject to the FCA’s full scope of financial promotion rules.
The FCA is particularly concerned by non-UK entities using social media for financial promotions, where UK consumers would not be protected by UK regulation. Firms can adopt one of the following strategies: separate their social media profiles to have a solely UK-focused profile; or adopt geo-location techniques to redirect consumers automatically to the UK website or mobile app.
The rise of these types of promotions on social media:
- Poor quality promotions of deferred credit, also know as Buy-Now-Pay-Later (BNPL) products
- Non-compliant crypto-asset promotions
- Peer-to-peer investing
- High-risk investments
Importance of risk warnings
The FCA set out guidelines on how the design features on social media should account for the risk warnings being hidden or obscured, for example by video content, or lost in the captions. There is specific guidance to firms and social media influencers on how to meet the expectations of the FCA for different platforms, such as Twitter where the risk warning may be truncated due to character limits, or when the timing of the risk warning is not compliant on video content such as YouTube.
Consumer Duty focus
Firms are expected to market on social media using strategies that align with acting to deliver good outcomes for retail customers. Principle 12 and PRIN 2A apply to all financial promotions on social media. Vulnerable consumers are more susceptible to excessive targeting by firms using social media to influence consumer decision-making. The FCA does not believe that social media is an appropriate channel for all marketing. There is particular emphasis on adapting communications to deliver good consumer outcomes.
Defining Influencer and enforcement action
The FCA have defined the different types of social media influencers, from celebrities to “finfluencers” to financial topic forums that engage consumers to buy financial advice and products. The FCA has partnered with the Advertising Standards Authority (ASA) to create an infographic to help influencers with a checklist of how to be compliant with financial promotion rules. However, the FCA seems to have placed its expectations for enforcement action on the ASA, the Government’s Online Safety Bill and the online platforms themselves to consider if they host illegal content.
This approach contrasts the enforcement action of US regulator, the Securities and Exchange Commission (SEC), which fined Kim Kardashian $1.26million dollars for illegally touting a crypto asset security offered and sold by EthereumMax, without disclosing the payment she received for the promotion. The FCA’s proposed guidance seems to lack a strict level of enforcement action for the breach of financial promotions rules.
In 2020, the FCA issued a consumer warning against Lanistar, the digital banking fintech for its social media campaigns, with a marketing focus on influencer and celebrity advertising and endorsement via platforms.. The firm agreed to add an appropriate disclaimer to its marketing materials updating its regulatory status to confirm that it is not conducting regulated activities. The firm is also going to amend certain aspects of its website. On that basis, the FCA removed the consumer warning. Its approach to enforcement on social media campaigns seems to be light-touch when compared to the US regulator’s approach to clamping down social media financial promotions.
However, in an online statement, Lucy Castledine, Director, Consumer Investments at the FCA, said:
‘We want people to stay on the right side of our rules, so we’re updating our guidance to clarify what we expect of firms when marketing financial products online.
‘And for those touting products illegally, we will be taking action against you.’
This emphasises the importance of complying with social media rules when promoting financial advice and products, as the FCA’s enforcement action is likely to be taken for breaches of the rules.
The FCA is consulting on its proposed guidance until 11 September 2023.
Our Payment Services Regulatory team will be monitoring next steps and shall keep you up-to-speed with the latest developments. We are here to help, so please do get in touch with the team if you have any questions.
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For further information, please contact:
Gavin Punia, Partner, Bird & Bird
gavin.punia@twobirds.com
