The Financial Conduct Authority (FCA) has updated guidance on financial promotions on social media to ensure compliance among firms and their affiliates
The FCA has emphasised that before endorsing regulated financial products, one must get authorisation from an FCA-authorised organisation to protect influencers’ legal compliance and provide consumers with the knowledge they need to make informed choices.
Starting in October 2023, companies that want to market crypto assets in the UK have to be registered or authorised by the FCA, or they have to have permission from a registered company to promote them. These promotions ought to be open, fair, and free of false information. They should also provide clear cautions about potential risks and refrain from inadvertently incentivising investments.
The FCA seeks to clarify what is expected of businesses and influencers when it comes to financial promotions on social media. It places an emphasis on fairness, clarity, and adherence to regulations in order to minimise emerging consumer harm and guarantee informed decision-making. This includes strict guidelines for unauthorised individuals and technology-neutral applications across all advertising channels.
Hargreaves Lansdown head of money and markets Susannah Streeter says: “The Financial Conduct Authority has been harnessed with new powers to give consumers extra protection amid the lure of high-risk investments and the crypto Wild West, and it now has influencers in its sights.
“Regulators are clearly horrified at the damage superstar celebrities can do to the bank balances of vulnerable consumers, who are influenced by almost every move they make. The delusions of quick riches can spread far too rapidly on social media with speculation amplified by reposts by millions of followers.
“|The watchdog has been on high alert ever since Kim Kardashian promoted Ethereum Max in 2021 without disclosing to her followers she had received money to do so. Soon after the FCA warned that it may have been the financial promotion with the single biggest audience reach in history, given the huge size of Ms Kardashian’s following, which currently stands at 364 million. She was subsequently fined $1.26 million, by the Securities and Exchange Commission. Ethereum Max has plummeted like a stone from its all-time high in May 2021 and is down 98.7%.
“The FCA wants to send out reminders to celebrities and other influencers about the risks they run if they don’t understand the rules. If they promote financial products that are subject to regulation without the approval of an FCA-authorised person, they may be committing a criminal offence.
“The Advertising Standards Authority expects influencers to label content as an ad upfront if they get any form of payment, and this must include affiliate links. For high-risk promotions, warnings need to be displayed throughout the promotion and not hidden or obscured by designs or features on a social media platform.
“The watchdog is worried that too many financially vulnerable people are being lured into ‘get rich quick’ schemes, with 14% getting into debt during the pandemic to speculate in crypto assets. The FCA has repeatedly warned that investing in crypto currencies is extremely high risk and that speculators risk losing all their money.
“These fresh warnings from the FCA come as crypto is having its moment in the sun once more, with Bitcoin resurging more than 7% in around 24 hours, heading back above the psychologically important $70,000 mark. It lost ground last week following on from hitting an all-time high of $73,797.68 on March 14. The arrival of spot ETFs on the market has prompted a surge of activity and a growing trend of more institutional investment in Bitcoin. But the US regulator, the SEC has also taken pains to underline the risks associated with the currency and products whose value is tied to crypto.
“Bitcoin may have edged more into the mainstream with the approval of these ETFs and increased interest from institutional investors, but it’s still showing all the hall marks of an unpredictable teen, given its volatile temperament. However, you have to keep an eye on it, as its offspring, via blockchain developments, look likely to present opportunities.”
AJ Bell director of personal finance Laura Suter says: “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.
“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.”
