Regulator clarifies that existing FCA rules will continue to apply but will also reflect the evolving landscape of financial promotions on social media.
On 17 July 2023, the FCA published a guidance consultation (GC23/2) relating to financial promotions on social media.
Acknowledging that social media is “being used by many consumer as a go-to source of information”, the FCA is updating its existing guidance on social media and customer communications to take into account the changing landscape of social media. The existing guidance, FG15/4: Social Media and Customer Communications, will be retired once the new guidance is finalised.
Not surprisingly, the FCA has identified social media promotion as an area of regulatory focus. The consultation notes that “69% of financial promotions communicated or approved by authorised firms which were amended or withdrawn following our intervention involved website or social media promotions”.
Notably in February 2023, the FCA expressed concerns in relation to fin-fluencers (please see Latham’s previous blog post), and in May 2023 it announced a collaborative effort with the Advertising Standards Authority (the ASA) to educate fin-fluencers about the risks of promoting financial products.
Additionally, in the 2023/24 Business Plan, the FCA identified the following key activities:
- “Increase our technological capability to search across social media platforms to continue to identify illegal financial promotions faster and in larger volumes. Work with agencies and ‘fin-fluencers’ to educate them about their obligations when promoting financial services”.
- “Continue work with social media platforms and online search engines to ensure they improve the way they identify and remove illegal content”.
The FCA stated that many of the key of principles of FG15/4 still hold, but given that use of social media has evolved since that guidance was finalised, new platforms are being used for financial promotions. This revised guidance will therefore reflect the current social media landscape.
The revised guidance demonstrates how the FCA is working with other regulators who also focus on the online and social media space (in this case the ASA and the Office of Communications (Ofcom)), an increasingly common theme as regulators grapple with how to bring online activity within the traditional financial services regulatory perimeter.
The revised guidance addresses the following areas:
1. Prominence of Information Required
The guidance consultation clarifies that the FCA’s expectations remain the same in relation to the prominence of required information. It features helpful illustrative examples of both compliant and non-compliant financial promotions and a table setting out the prominence standards applicable to the various social media channels. The FCA remarks that “there should be balance in how financial products and services are promoted, so that consumers are informed not only of the potential benefits but also of the relevant risks”. The FCA points out that for some products and services, social media may not be an appropriate advertising medium (debt counselling is provided as an example of a service which may be too complex to advertise appropriately on social media). Firms must utilise proper systems and controls in managing promotions on social media. They must also ensure that they adhere to the requirements to include risk warnings and other required statements in promotions for certain products and services. Firms approving the financial promotion of an influencer are also advised to pay particular attention to the influencer’s audience demographics and whether that audience is likely to demonstrate any characteristics of vulnerability.
2. Consumer Duty and Increased Expectations of Firms
The FCA reminds firms that financial promotions are subject to the core requirement to be fair, clear, and not misleading. The Consumer Duty, which comes into force on 31 July 2023 for new and renewal customers, builds upon this core requirement, mandating that firms deliver good outcomes for retail consumers and promote consumer understanding. The FCA notes that it has observed consumers on social media being repeatedly bombarded with financial promotions. Firms are reminded to ensure that their marketing strategies are devised with the Consumer Duty in mind. Communications should be regularly tested, monitored, and adapted to support good consumer outcomes.
3. Affiliate Marketing
In relation to affiliate marketing, the FCA stresses that firms should monitor and take proactive responsibility for affiliate marketers and their communication of financial promotions. It also notes that if an affiliate marketer is communicating a financial promotion containing the firm’s referral link without the firm having developed, created, or controlled the content of that communication, the FCA may consider that the firm is responsible for that communication and would be liable for that financial promotion.
4. High-Risk Investments (HRIs)
As part of the Consumer Investment Strategy, the FCA is seeking to reduce overall retail consumer involvement in HRIs, particularly when a retail consumer demonstrates a low-risk tolerance or vulnerable characteristics. Accordingly, in this guidance consultation, the FCA seeks to remind firms that HRIs are subject to specific promotion restrictions under COBS 4.12A, COBS 4.12B and COBS 22. It also notes that certain investments are banned from mass marketing to retail investors and others such as crowdfunding, cryptoassets, and CFDs are subject to additional restrictions. Firms are further reminded that they “should ensure they are playing an active role in ensuring the promotion remains compliant for their lifetime”.
5. Perimeter Issues
The FCA notes that it has seen instances in which an influencer communicated a financial promotion without approval to do so as the influencer did not appreciate that the financial promotion restriction applies. The FCA reminds firms that “any form of communication (including through social media) is capable of being a financial promotion if it includes an invitation or inducement to engage in investment activity”. It also noted that this includes “private” or “by-invitation only” social media platforms. The guidance consultation sets out several examples which, in the FCA’s view, would satisfy the “in the course of business” test under the financial promotion regime.
Firms are also reminded of the rules and the specific legal requirements (including the FCA Handbook provisions) on unsolicited electronic communications.
6. Record Keeping
Firms are reminded to ensure that they have adequate record-keeping and sign-off provisions on digital media communications.
The FCA is welcoming views from interested parties by 11 September 2023. It intends to consider responses to the consultation and will seek to publish final guidance later in 2023.