In March 2024, the UK's financial watchdog, the Financial Conduct Authority (FCA) issued a press release, which is giving out new Guidance (“Guidance” or “Guidelines”) for financial services promotion. These new Guidelines aim to prevent scams and ensure people are making informed decisions about their finances. It applies to all online financial promotion, including the increasingly popular world of memes, TikTok and YouTube videos, and even Livestreams.
The comprehensive nature of the Guidance, which supersedes the previous guidance (FG15/4: Social media and customer communications), is designed to ensure all parties involved in promoting financial products or services online are aware of their responsibilities. This includes authorized firms, social media influencers, and even affiliate marketers. Trade bodies representing these groups are also expected to be familiar with the updated guidelines.
All financial promotions must empower consumers to make informed decisions. This means firms need to consider the target audience, the advertised product's complexity, and potential areas of confusion that might arise.
The Guidance extends its reach beyond authorized firms to encompass unauthorized persons as well. Social media influencers who promote financial products or services are now responsible for ensuring their communications comply with FCA rules. This may involve obtaining approval from authorized firms for their promotional content.
The FCA also clarifies that even communications on "private" social media channels like Discord or Telegram can be considered financial promotions if they encourage investment activity. This broadens the scope of the FCA's regulations and requires firms to be mindful of their communications across all platforms.
Here are the key takeaways from the FCA's updated guidance, broken down by the relevant sections of the Guidance:
Standalone compliance
Each element of a financial promotion, be it a social media post, email, or banner ad, must comply with FCA rules.
Promotions for intricate financial products might require additional information or disclaimers to ensure consumer understanding. Firms can use hyperlinks or separate pages for this purpose, but the initial promotion itself must still be clear and informative.
For promotions displayed across multiple frames (like Instagram stories), the FCA will assess the overall message and ensure a balanced presentation of both benefits and risks.
The level of detail required in a promotion will depend on the target audience's needs, the type of decision involved, and any potential for confusion.
Prominence
There are existing FCA regulations on what information needs to be displayed prominently in financial promotions, and these apply equally to social media as any other channel. Make sure you understand the relevant rules for your products.
When promoting on social media, information required to be prominent should be easy to find and understand. This could involve factors like size, position, font style, or even using visuals like graphs or audio-visuals.
Don't overwhelm consumers with excessive information. This can be especially problematic on social media, where attention spans are shorter. Consider user testing to see if your promotion is clear and easy to understand.
Burying risk information in captions or relying solely on visuals isn't enough. Risks should be presented prominently, following the FCA's Handbook rules.
FCA discourages hiding important information behind click-throughs or other user actions. If truncation (like "...see more") cuts off key details, you'll need to find a way to display as much as possible.
If displaying all information prominently is impossible, consider including it in an accompanying image (but only if the platform allows displaying images alongside text).
The FCA reminds firms of their duty to ensure consumer understanding. If a promotion relies on obscured or truncated information on social media, it might not be compliant with FCA regulations.
Suitability of social media for financial promotions
Financial promotions must be fair, clear, and not misleading. This means highlighting both potential benefits and relevant risks to inform consumers.
Not all financial products are suited for social media promotion. Complex products with intricate features or high risks might be difficult for consumers to understand in a limited format.
Consider the platform's limitations. Social media with character restrictions might not be ideal for explaining intricate financial products.
Social media can be a good tool to direct potential customers towards other channels with more detailed information.
Consider using "image advertising" to promote your firm generally, without referencing specific products.
The FCA advises debt counseling firms to carefully evaluate if social media is an appropriate platform for promoting their services due to the complexity of debt solutions.
Promotions for debt solutions should be balanced and highlight both the potential benefits and drawbacks, including risks and costs.
Promotions for Buy-Now-Pay-Later (BNPL) products must clearly communicate the associated risks, such as the unregulated nature of the agreements, potential debt burden, consequences of missed payments, and fees.
Even seemingly lighthearted content like memes can be considered financial promotions and fall under FCA regulations, especially in the cryptoasset sector.
High‑risk investments (HRIs)
Firms promoting investment products must be familiar with the specific marketing restrictions outlined in the FCA's Conduct of Business Sourcebook (COBS) for the products they advertise.
Certain HRIs, like non-mainstream pooled investments and speculative illiquid securities, are banned from mass promotion to retail investors on social media.
While some HRIs like crowdfunding, cryptoassets, and CFDs can be marketed to retail investors, they are subject to specific restrictions. Firms need to ensure their promotions comply with these rules, including prominent risk warnings and bans on investment incentives.
Prescribed risk warnings
Risk warnings for HRIs and high-cost short-term credit (HCSTC) must be displayed prominently and at the same time as the promotion itself, not buried later or hidden in less noticeable areas.
Research shows consumers are more likely to understand risk warnings if they are concise and clear. Avoid burying them amongst other promotional elements.
When a full risk warning is required, firms cannot hide it behind a click-through or another user action. This applies particularly to platforms that truncate text, where the full warning must be visible without needing to click "see more...".
If FCA rules allow a shortened warning, ensure the entire shortened phrase is displayed clearly and the full warning is easily accessible through a click-through.
Don't drown out risk warnings with flashy visuals or highlight only the benefits of a product. The promotion needs to be fair and clear, presenting both sides of the coin.
The FCA offers examples of prominent risk warnings on various social media platforms. Consulting these case studies can help firms ensure compliance.
Fortunately, the FCA Guidance includes various of useful tables and illustrative examples of compliant and non-compliant promotions, offering firms a clear side-by-side comparison to ensure their social media marketing hits the right note. For instance, see the Table 1 below for illustrative examples of prominent risk warnings across various social media channels:
Compliance with the regime for unregulated non‑UK based entities
The FCA guidance clarifies the rules for overseas entities promoting financial products on social media that might reach UK consumers:
Even if a financial promotion originates outside the UK, it can be subject to FCA regulations if it's accessible to UK consumers.
Unauthorized overseas firms have several options to comply with FCA rules:
Getting their promotions approved by a UK authorized person.
Geo-blocking UK users from accessing their promotions.
Modifying their content to avoid inviting UK consumers to invest.
Implementing controls to prevent UK consumers from engaging with the promotion.
Simply stating a promotion is "not for UK consumers" is unlikely to be sufficient for compliance.
When authorized and unauthorized entities within a group share social media channels, extra caution is needed. The FCA has seen cases where UK consumers interacted with what they believed to be a UK-regulated firm, but were actually connected to an unregulated overseas entity.
Groups with both authorized and unauthorized entities using shared social media channels need to:
Ensure unauthorized entities' promotions comply with FCA rules.
Have safeguards in place to prevent UK consumers from being directed to unregulated overseas websites.
Consider having the UK authorized entity approve all social media promotions.
As an alternative, firms can create separate social media accounts specifically for UK consumers. These accounts must be actively managed and not simply empty shells.
Unregulated Activity: If unauthorized overseas entities provide financial services to UK consumers, they may be in breach of separate FCA regulations prohibiting unauthorized regulated activity.
The Consumer Duty
The Duty applies to all social media communications and financial promotions, even if there's no direct customer relationship.
Meeting basic standards for fair and clear communication is no longer enough. Firms must actively support informed decision-making by consumers.
Marketing strategies should consider the target audience and the specific social media platform being used. Testing for clarity and understanding among the target market is encouraged.
Confining promotions to a limited target market on social media can be challenging. Simply disclaiming "for professionals only" might not be sufficient. Firms need to ensure they can effectively control who sees the promotion to avoid unintended exposure to unsuitable consumers.
The FCA warns against bombarding consumers with repeated promotions, especially those exploiting behavioral biases of vulnerable audiences.
Regularly reviewing and adapting social media marketing strategies is crucial, especially as platforms evolve and new features emerge.
The FCA offers its own research (OP23, OP26) on consumer behavior to help firms understand how to best promote financial products.
Firms should also consider the FCA's sector-specific reviews, such as marketing expectations for high-cost lenders, when formulating their social media marketing strategies.
Recipients sharing or forwarding communications, Unsolicited promotions, and Approval and record‑keeping
Firms remain responsible for breaches in their original communication, even if others share or forward it on social media.
Sharing promotions with a limited target market can be difficult on social media. Firms should consider if it's the right platform for such products.
If a firm shares a customer's social media post promoting a financial product, the firm is responsible for compliance, even if they didn't create the original content.
The FCA reminds firms of existing rules regarding unsolicited promotions (cold calling) and electronic marketing communications (PECR). Following a customer's social media profile does not constitute an established client relationship for exemption from these rules.
Understanding the distinction between real-time and non-real-time promotions is crucial, as different FCA rules apply. Social media promotions (e.g., tweets) are generally considered non-real-time.
Firms must have a system for approving social media communications by qualified senior personnel, as required by the Senior Management Arrangements sourcebook (SYSC). Adequate records of these communications must also be maintained (SYSC 9) to protect consumers and address potential complaints. Social media platforms themselves should not be relied upon for record-keeping due to potential content deletion.
Influencers and Financial Promotions
Even if a financial promotion is approved by an authorized person, the FCA can still take action if influencers promote it in a non-compliant way.
The FCA recognizes various influencer models:
Celebrity influencers with large followings, but no financial expertise, may be promoting financial products without necessarily understanding the intricacies.
"Finfluencers," who may not be FCA-authorized to provide financial advice but offer recommendations on social media, require special attention due to the high level of trust consumers place in them.
Online forums and discussion groups can also be used to promote financial products or services, and the FCA is aware of their potential for misuse.
The FCA emphasizes that any influencer can be held responsible for communicating illegal financial promotions regardless of their follower count.
The FCA has partnered with the Advertising Standards Authority (ASA) to create an infographic specifically to help influencers understand their obligations when promoting financial products or services. This resource encourages influencers to carefully consider if they are a suitable fit for the product and educates them about the potential legal risks of promoting financial products illegally.
Social Media Platforms and Financial Promotions
Firms and influencers must comply with both FCA regulations and the specific advertising policies of each social media platform they use.
Social media platforms have a role to play in preventing illegal financial promotions. This includes removing such content when identified and considering the suitability of their platform for promoting complex financial products.
The Online Safety Act places additional duties on social media platforms to proactively mitigate the risks of illegal content, including illegal financial promotions. The FCA is working with Ofcom (the Office of Communications), the regulator overseeing the Act, to ensure a smooth alignment between the Online Safety Act and financial promotion legislation.
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The Financial Conduct Authority's recent Guidance ensures that every entity involved in online financial promotions, including influencers and social media platforms, adheres to stringent rules to protect consumers. As digital interactions deepen, staying compliant is crucial for your business. At Prokopiev Law Group, we leverage a broad global network of partners to ensure your compliance worldwide, keeping you ahead in the rapidly evolving financial promotion landscape. If you require detailed information or guidance on navigating these regulations, write to us today. Prokopiev Law Group delivers dynamic legal solutions tailored to the digital and blockchain sectors. Our services span from DAO legal support and Web3 terms of service to crypto token sale legal advice and NDA for blockchain teams. We excel in protecting intellectual property in the Web3 space, ensuring crypto source code protection, and managing trademark registration in blockchain. Our legal team is adept in formulating litigation strategies for crypto startups, devising robust tax strategies for blockchain projects, and enforcing compliance with token sale regulations. We also offer advanced advisory in insider trading policies for crypto businesses, Web3 legal risks management, and blockchain data protection laws. Whether it's decentralized finance consulting, NFT rights protection, smart contract analysis, or comprehensive blockchain compliance audits, Prokopiev Law Group is your premier partner for navigating the intricate legalities of the digital world.
The information provided is not legal, tax, investment, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be automatically generated. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information.
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