9
April
2024

FCA Guidance on Social Media Financial Promotions

The FCA guidance is framed to offer assistance as to how firms might approach complying with their existing regulatory obligations. 

John Hartley | Head of Business Crime and Regulation

The Financial Conduct Authority (FCA) has now published its final guidance (FG24/1) on financial promotions on social media. 

British residents have reportedly lost over £2.6bn due to investment fraud since 2020. We have all seen online financial promotions via social media – often they cannot be avoided. Some scroll past, some block, others report as suspicious.  

Some, however, follow the link, intrigued by the glossy advertising and savvy promotion of the financial investments glaring out from the screen. The hook of most being online “get rich quick” investment opportunities.  

What is the new FCA guidance on social media financial promotions?

The new FCA guidance is unambiguous in its target – paragraph 1.1 states: 

“This Guidance clarifies our expectations of firms and others, such as influencers, communicating financial promotions on social media. Our financial promotion rules are technology neutral and apply across all channels used to advertise, including social media.” 

The FCA accepts that social media may well be an important aspect of a firms’ marketing strategy but also that poor quality promotions can lead to significant consumer harm.  

We must stress that this is new guidance – not new laws or obligations. The guidance is framed to offer assistance as to how firms might approach complying with their existing regulatory obligations. 

Below, we have highlighted some of the areas covered by the new guidance below. The full guidance may be found here – FG24/1: Finalised guidance on financial promotions on social media (fca.org.uk)  

New FCA guidance:

The updated guidance will apply to: 

  • authorised persons communicating or approving financial promotions on social media; 
  • unauthorised persons, including influencers or other affiliate marketers, involved in communicating financial promotions on social media; and 
  • trade bodies representing the above groups. 

What is a Financial Promotion on Social Media? 

Interestingly, the FCA does not really draw a distinction between a financial promotion on social media or elsewhere.  

The guidance states 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. This can include communications through ‘private’ or invitation only social media channels, like chatrooms such as Discord and Telegram.” 

Under section 21 (s21) of the Financial Services and Markets Act 2000 (FSMA), a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity. This is known as the financial promotion restriction. 

In certain situations, this restriction does not apply – but only if: 

  • the promotion is communicated by an authorised person
  • the content of the promotion is approved by an appropriate authorised person or,
  • an exemption in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO) applies.

What is an Unauthorised Financial Promotion?

Any financial promotion which is made in breach of S.21 FSMA is illegitimate and a criminal offence. Those responsible for making such a promotion are liable to up to 2 years imprisonment, an unlimited fine – or both.  

That is just the penalty for breaching the regulations. There are additional offences and penalties for fraud, theft, and money laundering – all of which may carry substantially higher sentences.  

For example, an (unauthorised) social media influencer communicating a financial promotion that does not have any of the above exceptions will be considered as committing a criminal offence. The legislation is also drafted in such a way as to capture promotions which are made from abroad if they have an impact on UK residents.  

Therefore, even if the social media promotion is made from abroad but a UK resident is affected, it will be caught by the legislation. 

What does the guidance say?

The FCA expects financial promotions to be standalone compliant. This means that each communication must comply with the existing rules when considered individually. Whilst not exhaustive, the FCA have highlighted some key areas for firms considering using social media as a promotional tool to be aware of: 

  • Suitability of the platform 

Any financial promotion – whether on social media or not – must; 

  • support consumer understanding 
  • be clear, fair, and balanced and;  
  • provide information as to risk as well as benefit.  

Social media is not designed for a lengthy monologue – the posts are designed to be short, bright, and snappy to catch your attention. Therefore, it is not necessarily an appropriate channel for such detailed communications. 

The new guidance does not only cover investment opportunities but also the way in which debt solution and unregulated credit businesses (buy now pay later) are promoted.  

  • Prominence 

The FCA offers existing guidance on ensuring that information is prominent in financial promotions, and this is no different to those intended to be used for promotion on social media.  

For example, there should be no reduced visibility of important information or any truncated text. Importantly any warning should be prominent in the promotion. 

  • High Risk Investments 

High Risk Investments (HRIs) are subject to additional rules, regulations, and guidance. The marketing restrictions for these investments (which can include crowdfunding, crypto assets, and contracts for differences (CFDs)) cannot be circumvented by the use of social media and therefore any firm proposing to use an online platform as a promotional tool for HRIs will need to ensure they are compliant.  

  • Marketing strategies 

The FCA guidance sets out a clear reminder of the Consumer Duty which is owed to customers in that firms using social media must consider how their marketing strategy aligns with delivering good outcomes for retail customers. Again, the firm must ensure that its promotions are clear, fair, and not misleading.  

Any firm must consider the features of the social media platform to ensure that its target audience understands the promotion.  

  • Influencers & Fin-Fluencers 

The FCA has taken an interesting step in teaming up with the Advertising Standards Agency (ASA) to create an infographic to help the influencer (or fin-fluencer) to make a more informed decision if approached to promote an investment activity.  

This is designed to help that person to consider whether they are the right person “to promote a product or service as well as highlighting when they may be at risk of communicating financial promotions illegally.” 

What should businesses do in relation to the new social media guidance?

The new and updated guidance from the FCA cannot of course remove those who are intent on committing fraud and other criminal offences by targeting vulnerable persons via social media. The FCA want to create a safer social media environment for consumers who may come across such financial promotions.  

It will however assist firms that offer genuine investment opportunities in their assessment as to whether social media is an appropriate platform for the promotion of those opportunities. 

The guidance should also give some assistance to those social media influencers who are asked to promote certain investment opportunities. 

Ultimately the consumer should always think twice and consider whether the promotion is fair, balanced and highlights both the risks and rewards.  

For more information, please contact our Head of Business Crime and Regulation, John Hartley via john.hartley@primaslaw.co.uk

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