FCA addressing the growing risks social media presents

Recognising the increasing numbers of influencers communicating financial promotions on social media, and the rise of social media as an important platform in firms' marketing strategies, the FCA published final guidance in March this year clarifying its expectations of both firms and influencers who promote financial products and services ("finfluencers")("the Guidance").[1]

In particular, the FCA reminded firms of the need for all financial promotions to be standalone compliant and, where they work with social media finfluencers, to ensure that they take proactive responsibility for how their affiliates and finfluencers communicate financial promotions.

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The FCA also warned finfluencers that they may be in breach of the Financial Promotion Restriction, which prevents unauthorised persons from communicating financial promotions unless they are exempt or the content of the promotion has been approved by an authorised person. A breach of the Financial Promotion Restriction constitutes a criminal offence which is punishable by up to two years' imprisonment, the imposition of an unlimited fine, or both. In the Guidance, the FCA encouraged finfluencers to consider whether they are the right person to promote a financial product or service and provided detailed guidance as to when they may be at risk of communicating financial promotions illegally.

The Guidance advances the FCA's statutory objectives of securing an appropriate degree of protection for consumers and ensuring that markets function well. By clarifying expectations for both firms and finfluencers, the FCA hopes that consumers will be better informed and aware of the risks involved in purchasing financial products and services, helping them to make better decisions that are aligned with their needs and risk profile and thereby mitigating the risk of unexpected financial losses and a loss of trust in financial services.

'Finfluencers' charged for promoting unauthorised FX trading scheme on social media

Not long after publication of the Guidance, the FCA announced on 16 May 2024 that it had brought charges against nine finfluencers[2], including well-known social media influencers from the shows Love Island and The Only Way is Essex[3], who now all face one count of issuing unauthorised communications of financial promotions under the Financial Services and Markets Act 2000. One of the nine individuals faces an additional count of breaching the General Prohibition which makes it a criminal offence for any person to carry on an FCA regulated activity without being authorised by the FCA.

Concluding remarks - be wary

Today's announcement by the FCA demonstrates the FCA's commitment to protect consumers from potentially harmful promotions made by influencers who often have significant followers and reach. Social media influencers should take note of this clear warning from the FCA that it will take action where it deems them unlawfully promoting financial products and services, with criminal prosecution being a real threat.

Similarly, firms using finfluencers should ensure they have proper systems and controls to manage how their promotions are used on social media. Otherwise, firms may face enforcement action for breach of the Consumer Duty, which requires firms to ensure they act to deliver good customer outcomes, and Principle 3 of the FCA's Principles for Businesses which requires firms to take reasonable care to organise and control their affairs responsibly and effectively with adequate risk management systems. Firms should ensure that they take appropriate steps to ensure that any finfluencers they use are not illegally communicating financial promotions. This is likely to include:

  • reviewing which products are likely to be suited to finfluencer promotion and which are not and putting in place appropriate internal policies and guidelines for appointing and managing finfluencers;
  • doing appropriate due diligence before engaging a particular personality as a finfluencer (considering matters such as their past endorsements, level of compliance, behaviour etc. but also their audience demographics, whether they might have a following among vulnerable people etc.);
  • ensuring there is a robust influencer contract in place with remedies for non-compliance;
  • providing guidance and training, alongside the contract, to ensure that finfluencers are aware of and understand their responsibilities;
  • ensuring that posts are reviewed and approved prior to publication; and
  • monitoring finfluencer output and taking remedial action as necessary.

Our dedicated Financial Services Regulatory and Advertising teams are experienced to deal with all of the above and are here to help.

Footnotes

[1] FG24/1: Finalised guidance on financial promotions on social media )
[2] 'Finfluencers' charged for promoting unauthorised trading scheme
[3] Former 'Love Island' stars charged with promoting trading scheme on Instagram