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Social media influencers risk being prosecuted if they promote financial products without due regard to consumer protection, the UK Financial Conduct Authority (FCA) has said, even if they are based overseas.
In new guidance issued this week, the regulator says it expects any person or entity promoting financial products on social media to be compliant with the Financial Services and Markets Act 2000 (FSMA), which requires, for example, advertisements for high-risk investments to carry prominent risk warnings.
A cohort of finance influencers, or “finfluencers”, has sprung up on platforms such as Instagram and TikTok in recent years, with some gaining millions-strong followings of mostly young people who might be saving and investing for the first time.
Although many are genuine experts giving valuable advice, regulators are worried that some consumers are being taken for a ride.
Social media has become a “central part” of firms’ marketing strategies, the FCA said, and firms and influencers must remember that they are “on the hook” for the legality of their promotions.
“Promotions aren’t just about the likes, they’re about the law,” said Lucy Castledine, director of consumer investments at the FCA. “The FCA will take action against those touting financial products illegally.”
The latest guidance stresses that social media influencers can be held liable under both the FCA’s financial promotion rules, which are outlined in Section 21 (s21) of FSMA and the rules of the Advertising Standards Authority (ASA).
Under s21, an FCA-authorised person may communicate a financial promotion directly, or an unauthorised person may communicate a financial promotion that has been approved by an authorised person (also known as an “s21 approver”).
A breach of s21 is a criminal offence and is punishable by up to two years’ imprisonment, an unlimited fine, or both.
The financial promotion rules cover a wide range of products and services, including crypto trading platforms and unregulated credit products, such as buy now, pay later (BNPL).
Since October 2023, when crypto-asset firms came under s21 for the first time, the FCA said it has issued more than 450 warnings for non-compliant promotions.
Extra-territorial reach
The rules also have “broad territorial application”, as a communication can be deemed in scope if it “has an effect” in the UK, the guidance says.
This means that even when a communication originates outside the UK, the communicator is subject to s21 if the promotion reaches UK consumers.
Charles Randell, former chair of the FCA, said that overall the guidance is strong, but enforcing the rules against firms and entities outside the UK will be the main challenge.
“It’s great to see the FCA continuing to focus on the channels where so many people now get their information,” he told Vixio.
“This guidance should help to change the behaviour of regulated firms and influencers within the reach of the FCA, but promotions from outside the UK paid for by businesses which the FCA doesn’t regulate remain a huge problem.
“A robust approach to enforcement of the Online Safety Act by Ofcom will be critical to reduce the volume of illegal and harmful ‘finfluencer’ material on social media platforms.”
Under the Online Safety Act, only the products and services of FCA-authorised firms are permitted to be advertised on social media.
Delphine Chen, payments and crypto-assets consultant at compliance consultancy Cosegic, agreed that the huge number of users and high volume of content posted on social media will make the guidance difficult to enforce.
However, she added that FCA-registered firms will be under extremely close scrutiny over influencers’ activities around their products, as will overseas entities that sit within the same group as an FCA-registered firm.
Monitoring and control
The guidance makes clear that firms must display “good monitoring and oversight practices” to ensure that financial promotions communicated by influencers are compliant.
For example, if an influencer is communicating a financial promotion containing a firm’s referral link, but the firm has not “developed, created or controlled” the content of the promotion, the firm could still be at fault.
Likewise, if the FCA considered that the firm had “caused” a non-compliant communication to be made, it could still be held liable.
As such, the guidance strongly recommends that firms have in place policies and systems for monitoring and supervising influencers and their communication of financial promotions.
Firms should consider, for example, whether an influencer genuinely understands the product or service they are promoting and its regulatory implications.
They should also consider whether the influencer’s audience is suitable for the product or service in question (and the FCA notes that no following is too small to be exempt from s21).
Firms should ensure that relationships with influencers are manageable and do not exceed their capacity to monitor and supervise them.
Finally, if an influencer continues to promote a product or service in a way that is non-compliant, the firm must terminate their relationship with the influencer.
Chen said she welcomes the new guidance that specifically addresses finfluencers, whether or not they are working as an official partner of a firm.
“Many of these individuals may unintentionally promote a product or firm and will influence consumer decision-making,” she said, “but without warning of the risk of financial losses.”
