The UK’s Financial Conduct Authority has issued a new warning to ‘firms and finfluencers’ who promote financial services on social media platforms.
In its latest guidance for memes, reels and gaming streams promoting financial services published on 26 March, the FCA set out how adverts across social media channels must be “fair, clear and not misleading, meaning they must have balance and carry the right risk warnings so people can make well informed financial decisions”.
And given that social media has become a central part of firms’ marketing strategies, and firms are on the hook for all their promotions, the FCA has warned they need to ensure influencers they work with communicate to their followers in the right way.
“Influencers are reminded that promoting a financial product without approval from an FCA-authorised person with the right permission could be a criminal offence. Consumers need to be alert to dubious adverts and scams online, but it is important that influencers ensure they’re on the right side of the rules and consider what would happen to their own reputations if they’re found to promote products illegally”, the statement said.
Lucy Castledine, director of consumer investments at the FCA, said: “Any marketing for financial products must be fair, clear and not misleading so consumers can invest, save or borrow with confidence.
“Promotions aren’t just about the likes, they’re about the law. We will take action against those touting financial products illegally.”
Social media will not always be the best place to promote complex products, the FCA added.
“Firms need to consider whether a platform that offers limited characters or space is the right place to do so. Scrutiny of financial promotions has been ramped up and last year we removed over 10,000 misleading adverts, up from around 8,500 in 2022.”
In industry reaction, Suman Rao, managing director for the UK and Ireland at Avaloq said: “Social media is still something of a Wild West when it comes to financial services. While it can play a role in broadening the reach and appeal of beneficial financial solutions, it also brings risks if promotions and other communications are not sufficiently regulated.
“According to our research, over a quarter of UK investors consulted social media for investment advice (27%) in 2023, a four-percentage point increase on 2022 (23%). Yesterday’s guidance from the FCA is therefore a welcome development.
Rao added: “Financial advice can be complex, and it is vital that finfluencers do not oversimplify it on their social media channels. This highlights the important role of established financial institutions in ensuring high ethics and trust in today’s digital era, and thanks to their prudent approach to marketing and their robust rules around financial promotion, these firms now have the advantage of already adhering to the standards set out by the FCA.
“These guidelines will help establish the necessary regulatory framework for a social media sphere which better protects consumers. We look forward to seeing how this guidance develops to create a fairer and safer environment for people engaging with financial service providers online.”
Laura Suter, director of personal finance at AJ Bell, said: “The regulator is trying to tackle a very large, very hard-to-grasp beast by bringing in tighter regulation on social media adverts for financial products. There has inevitably been a surge in paid-for promotions of financial products, particularly cryptocurrencies, in recent years. We know that social media plays a huge part in people’s research of investment products, particularly among younger, newer investors. One in six investors used social media to either research investment, find new opportunities or get updates on existing investments – but this rose to half of all investors aged 18 to 24, according to the FCA’s Financial Lives survey.
“The FCA is sending out a warning signal to finance companies and influencers that they need to stick within the rules when it comes to social media. But the regulator isn’t introducing any new rules or penalties for those who post misleading content, instead it has just tweaked the guidance to give more examples of when social media posts will be compliant or not.
Suter added: “In particular, the FCA has warnings for ‘finfluencers’, who are often dishing out advice on social media even if they don’t have a commercial arrangement with a finance company. The regulator is reminding these finfluencers that they could face up to two years in prison and an unlimited fine if they break the rules. The surge in support and information online when it comes to finances and investing can provide a real helping hand for newcomer investors. These finfluencers can help to explain key concepts like compounding and the importance of saving for the future in an engaging way, that could in turn enable people to make better-informed financial decisions.
“But there is a darker side to many of these posts, and a significant risk of finfluencers spreading misinformation or encouraging high-risk behaviour, such as day trading in individual stocks, without properly explaining those risks. There’s a real danger that financial social media becomes a Wild West, rather than a space to get accurate, clear information on financial planning.”
Earlier this year, on 26 January, the CFA Institute, the global association of investment professionals, published a report, ‘Finfluencer Appeal: Investing in the Age of Social Media‘, which revealed that insufficient financial literacy, limited interaction with regulated financial advisers, and a preference for obtaining information through digital platforms, was driving Gen Zers to engage with finfluencer content.
Rhodri Preece, CFA, Senior Head of Research, CFA Institute said about the report: “Finfluencers now play an increasingly significant role in educating young people about finance, with accessible content that is both informative and engaging. However, our research shows that finfluencer content often lacks sufficient disclosures, which can hinder the ability of consumers to evaluate the objectivity of the information, and some investors may be unaware when and how finfluencers are being paid to promote financial products.”
“Differences in definitions across markets for investment recommendations means complexity for finfluencers and a grey area for consumers of their content. Some finfluencers may be unaware that their activities are regulated and need appropriate disclosures. We urge regulators to consider a universal definition of an investment recommendation, and firms and social media platforms should work with finfluencers to ensure compliance with applicable policies.”
The research identified key characteristics of finfluencer content through an original analysis of content on TikTok, YouTube and Instagram in the United States, United Kingdom, France, Germany, and the Netherlands.
Across the content reviewed, 45% offered guidance (content that provides general information about investments but does not recommend a particular course of action), 36% included investment promotions (marketing and advertisements of investment products), and 32% included investment recommendations (content that recommends a specific course of action), Just over half (53%) of content containing a promotion included a disclosure, compared with 20% of content containing a recommendation. 27% of content included an affiliate link.
Ignacio Ramirez Moreno, CFA, successful LinkedIn finfluencer added: “Many finfluencers inadvertently provide financial advice that may be subject to regulatory scrutiny or that violates applicable laws. Their intent to demystify finance frequently brushes against regulatory barriers, blurring the line between casual unregulated investment ideas and regulated financial advice.”
“These create not only legal risk to the finfluencer; they also pose potential harm to the followers acting on their guidance. The consequences can be particularly severe for those lacking in-depth financial literacy who place unwavering trust in the guidance of finfluencers. As such, the call for a harmonized regulatory framework that guides cross-border finance conversations on social media is loud and clear.”
