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FCA consults on updated social media guidance

Author: ICAEW Insights

Published: 05 Sep 2023

An explosion in the use of influencers to promote financial products is under the spotlight after the FCA admits current advice has failed to keep pace with the evolution of social media.

FCA consultation GC23/2 proposes updated guidance on the use of social media for financial promotions. It follows concerns that unauthorised promoters are not only breaking the law in their promotional activity, but also create a risk of significant harm, particularly among younger consumers, due to the wide reach of social media and the complex nature of financial services. 

The financial promotion restriction in section 21 (S21) of the Financial Services and Markets Act 2000 (FSMA), makes it illegal for any person in the course of business to communicate an invitation or inducement to engage in investment activity, unless that person is authorised (for the purposes of this discussion, by the FCA or the PRA) or the content of the communication is approved by an authorised person. 

The FCA has concerns about the quality of financial promotions made across social media and is worried that unregulated influencers making financial promotions may commit an offence. It is also concerned that harm may occur when a UK consumer interacts with financial promotions that direct them to a non-UK entity, while the UK consumer still believes they are engaging with an FCA-regulated firm. Any communication capable of having an effect within the UK will be subject to the FCA rules and guidance.

Many of the key principles of the existing guidance (FG15/4) still hold, but this will be replaced when the new guidance is finalised. Guidance applies across financial services and, while many of the examples refer beyond asset management, the approach has similarities with existing FCA rules on the promotion of high-risk investments to retail investors.

Risk warnings

Areas that the FCA now wants to address with the proposed guidance include the following:

Firms should display the key information about risk on a consumer’s first interaction with the promotion and the warning should be displayed for a sustained period.

FCA expects risk warnings on social media to be clear, prominent and without a design feature that reduces their visibility or prominence. For stories and carousel posts (such as Instagram posts with multiple pictures), the risk warning should appear on every slide of the content.

For livestreams (including gaming streams), short-form and long-form video (such as TikTok or YouTube), risk warnings are to be displayed clearly and prominently for the duration of the content that constitutes a financial promotion. For character-limited media (such as the medium formerly known as Twitter) risk warnings should be displayed clearly within the text of the character limits.

The guidance consultation contains illustrative examples of content the FCA considers fair, clear and not misleading or non-compliant. Authorised firms are also reminded to take account of the latest version of the Web Content Accessibility Guidelines accessibility standard when designing digital financial promotions, in particular, the display of any required risk warnings.

Using influencers

Regulated firms should take appropriate steps to ensure influencers understand the product or service they are promoting and are aware of the relevant financial promotion rules. Promoting a regulated financial product or service without approval of an FCA firm, or providing financial advice without FCA authorisation, may be a criminal offence.

Authorised firms using or approving financial promotions for influencers should consider the influencer’s audience demographics and consider whether that audience is likely to demonstrate characteristics of vulnerability. It is the responsibility of the authorised firm to play an active role in ensuring the promotion remains compliant over its lifetime.

Using affiliates and others

Authorised firms should take proactive responsibility for how affiliates communicate financial promotions, how the authorised firm controls the content of the communications and, if the affiliate is unauthorised, how it is complying with the financial promotion restriction. These expectations apply where authorised firms operate social media profiles that are shared between UK and unauthorised non-UK entities.

Where promotions are shared by third parties, any breaches of FCA rules in the original communication are still the responsibility of the originating firm.

In the course of business

The FCA provides a number of examples of ‘in the course of business’ to help authorised firms and influencers determine how activities might come within the scope of a financial promotion. They include the following scenarios:

  • The influencer receives direct compensation by an authorised firm to issue posts encouraging followers to use the firm’s services.
  • An influencer promotes the regulated firm’s services in order to generate revenue from the relationship in the future.
  • An influencer promotes the services of a regulated firm to acquire more views, likes and attention for their content, which may lead to compensation by the social media platform or higher fees for future brand deals.
  • The social media communications promote investment products, investment chatrooms or affiliated links through which the influencer may gain a monetary benefit.

Higher-risk products

The updated guidance proposes that promotions of complex financial products might require additional supporting information to enable consumer understanding, such as supporting hyperlinks or clear and prominent pathways to give consumers enough information to make an informed decision.

Consumer duty

The FCA reminds firms using social media to consider how their marketing strategies align with acting to deliver good outcomes for retail customers. Firms’ communications should support and enable informed decision-making in a timely way. Firms must also consider how they tailor communications to account, for example, for the likely audience on social media and the features of different platforms.

The FCA is concerned that vulnerable consumers may be more susceptible on social media to the types of behavioural bias that excessive targeting tries to exploit. FCA would not consider this practice as acting in good faith or consistent with enabling good consumer decision-making.

Feedback to the FCA and action

FCA welcomes views and comments by 11 September 2023 and is aiming to finalise the guidance later in 2023. In the meantime, all firms and individuals promoting financial products and services via social media should review the existing and proposed guidance and assess their compliance.

  • Jonathan Wilson is a Director at ICAEW Financial Services Faculty member Ellis Wilson Limited, a compliance consultancy to investment managers and advisers.
  • To find out more about ICAEW’s Financial Services Faculty and to become a member, visit the faculty’s dedicated hub.

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