FCA drafts new social media guidelines | Robert Li

FCA drafts new social media guidelines | Robert Li

Financial influencers, dubbed ‘finfluencers’ are in the FCA’s sights, as the UK regulat…

Financial influencers, dubbed ‘finfluencers’ are in the FCA’s sights, as the UK regulator consults on new guidelines for social media promotion of financial products.

The UK’s Financial Conduct Authority (FCA) has issued new proposed guidelines regarding the use of social media in advertising. Published on 17 July, the draft guidelines are subject to an eight-week consultation period ending on 11 September, and are billed as “another significant step in [the FCA’s] work to combat illegal and non-compliant financial promotions”.

The FCA’s Director of Consumer Investments, Lucy Castledine explained in a statement: “We’ve seen a growing number of ads falling short of the guidance we have in place to stop consumer harm. 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.”

The consultation follows on from the FCA’s new rules on the financial promotion of crypto assets; those rules were published in June and will take effect from 8 October, and mandate clear risk warnings, granting first-time investors a 24-hour cooling-off period and explicitly prohibiting incentives such as ‘referral of friends’ rewards. It also takes into account the new FCA Consumer Duty rules effective from 31 July, which stipulate “overarching outcomes” and “cross-cutting rules” to ensure good consumer outcomes.

WHY NEW GUIDANCE?

Since its inception, social media has continued to grow in importance as a channel for marketing goods and services and possesses a number of important advantages including its speed, ubiquity and targeted nature.

The UK social media advertising sector attracted GBP 6.4 billion equating to nearly a third of all its internet advertising expenditure in 2021, according to a report jointly prepared by the Advertising Association and the World Advertising Research Centre (WARC), with younger consumers in particular increasingly relying on social media to obtain the latest information when making purchasing decisions, including selecting financial products.

Speaking to CDR, Simmons & Simmons supervising associate and financial services regulatory practitioner Gordon Ritchie considers the FCA’s overriding consideration is to make customers aware of as many of a financial product’s risks as possible: “Generally marketing materials have a lot of big documents and disclaimers; but social media, due to the style of delivery is often limited in the information a customer can obtain” he says, “so the idea is to improve design of advertisements to ensure warnings about risk are as clear as possible.”

Mishcon de Reya finance and banking disputes partner Guy Wilkes, who spoke to CDR via e-mail, said: “The guidance is a reminder that FCA financial promotion rules apply to all promotions in whatever medium they take place. Of particular note, is the FCA’s comment that in some cases social media may not be an appropriate channel for advertising.”

MODERNISING 

The regulator seeks to update the old guidance known as FG15/4 which dates back to March 2015 and which Ritchie says “in social media and technology terms was aeons ago”. Examples of the changing landscape include the 2015 document’s focus on platforms such as Twitter (now X) with its restricted character count as well as now-defunct short-video platform Vine; in contrast the new guidelines have declared they are “designed to be technology neutral and apply across all channels that can be used to advertise”.

FG15/4’s silence on the phenomenon of social media influencers, whose ranks have swollen hugely since the 2010s, is also striking. Influencers use their celebrity to endorse and promote goods and services on social media, with financial influencers – or ‘finfluencers’ – focusing on financial products. The FCA highlights the potential for consumer harm, citing research in the MRM and Mouthy Money’s Young Money Report 2022, which revealed that 90% of younger followers have been encouraged to change their financial conduct as a result of social media.

Also mentioned in the new guidance is streaming, where audio-visual material is published over the internet instantly without the requirement to download it to a device. This medium frequently contains sponsored or promotional content and a number of platforms, including 2016-founded TikTok, X and Facebook, now offer streaming, as well as Google-owned YouTube.

Simmons & Simmons disputes, regulatory and fintech managing associate Douglas Robinson considers the new guidance a helpful clarification and confirmation of the existing guidelines: “The [draft] guidance makes clear, which has always been the case, that both the firm whose financial product is being promoted and any influencer involved in promoting it, could be subject to FCA regulation and penalties for non-compliance.”

Also unchanged is the expectation of standalone compliance concerning any financial promotion, with additional direction on how prominently information about risk or other regulatory information is to be displayed, but the new guidelines take into account the way written online content is presented on certain platforms, not least the widespread use of truncated text which could serve to bury warnings at a lower level.

Affiliate marketing, where third-party publishers earn money by attracting traffic to a particular company’s products or services, is also being taken into account, as are new business models including crypto assets, and purchase payment services such as Klarna.

ANALYSIS 

Withers partner and head of its UK financial services regulatory team Harvey Knight says there are no surprises in the new draft guidelines which contain a multitude of examples of compliant and non-compliant social media publicity, but that they are likely to exacerbate the tension between the demands of advertising executives and the regulator. “Invariably a marketing person asks me on the phone: ‘Do we really have to say this? We want to keep it simple and make a sale point; we don’t want to emphasise the small print’.”

He continues: “But we live in an age now where we all scroll, and if the headline doesn’t draw in or encourage people to click, then it must all be in first paragraph whether you continue to read or not. It is all about immediacy and impact, but risk warnings take away from the immediacy and impact.”

Knight’s Withers colleague, media and reputation practice senior associate Andrew Fremlin-Key welcomes the FCA’s efforts, pointing out that people involved in the crypto industry have been calling for increased scrutiny for some time: “There are legitimate people in the crypto world so you can’t tar them all with the same brush, but some regulation is no bad thing. The government has been trying to mitigate harm caused through social media, which has been a long time coming when seeing what some social media companies have got away with for years”.

HOW TO PREPARE 

Once the consultation period has closed on 11 September the FCA will likely require a months-long time period to analyse the responses. Simmons & Simmons’ Robinson adds: “Once the guidance is finalised the FCA’s potential for taking action for non-compliance will be greater in certain scenarios, as it can’t be said that the industry does not have guidance. There will be clarity, so there is a reasonable chance the FCA will take action to enforce the rules.”

Based on previous FCA guidelines, Robinson’s colleague Ritchie opines that the final version is unlikely to deviate much from the draft guidance, and recommends a thorough review of marketing policies and procedures to ensure compliance: “Risk warnings are a key thing so make sure consumers are aware of the risks of products and services; not all forms of social media are appropriate for all services, particularly risky products that require delivery of a lot [warning] information to the customer.”

The breadth of the new guidance’s implications and the FCA’s enforcement powers suggest they should be uppermost in people’s minds, with Withers’ Fremlin-Kray counselling: “Get advice. There are other issues, such as breaching social media companies’ own terms and conditions which can also be strict, but enforcement is another question.”

“Social media is a fast-moving medium and can be a difficult arena for firms to control, particularly where third parties such as influencers become involved,” echoed Mishcon de Reya’s Wilkes. “It is vital that firms have appropriate policies and procedures in place to ensure all social media is compliant and that agreements with third parties are drafted to protect the firm from regulatory risk.” 

In June the FCA’s co-executive director Therese Chambers gave a speech at the City & Financial FCA Investigations and Enforcement Summit in London, promising to clamp down on misconduct and financial crime within the UK corporate world.

 

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