FCA publishes finalised guidance on promotions on social media

Celebrities and influencers are regularly seen promoting crypto and digital financial products on social media as part of a financial services company’s wider marketing strategy. There has been much discussion (and criticism) of the claims they have made about the benefits of these products, and the potential for consumers to be harmed. 

The FCA therefore launched a consultation on proposed guidance for financial promotions in July 2023. Then, on 26 March 2024, the regulator published its finalised guidance (FG24/1) which clarified its expectations for financial firms and influencers. 

Why have online social promotions caught the FCA’s attention? 

Celebrities and social media influencers are sought after by companies seeking to promote their products because they can reach an extraordinary number of people very quickly. But where this concerns financial firms and their products, the regulator has raised two problems:  

  • Reach: The people who access this promotional content are not necessarily within the envisaged target market for a given product. 
  • Clarity: The promotion might not be supported by clear risk warnings and facts which consumers need to base financial decisions on. 

The result is that these promotional actions have the potential for significant risk of harm to consumers. Given the regulator’s current priority of protecting customers through its consumer principle, it is unsurprising that it has intervened in this area. 

What should firms (and celebrities) bear in mind when promoting financial products? 

The FCA has been very clear on the parameters that must be followed and the need for financial promotions to be approved by a regulated financial institution.  

Importantly, all financial promotions need to be approved by an official approver under Section 21 of the Financial Services and Markets Act (FSMA). If unauthorised persons (such as celebrities or social media influencers) promote a regulated financial product or service without approval of an appropriate FCA-authorised person, they may be committing a criminal offence. 

Firms should also remember that, even when an influencer does not have a commercial relationship with a firm, their communications on social media about financial products or services may still be subject to the financial promotion restriction and require approval to communicate. 

Section 21’s financial promotion restriction is clear: 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. Breaching this restriction is a criminal offence punishable by up to two years imprisonment, the imposition of an unlimited fine, or both. 

The financial promotion restriction does not apply 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 FSMA 2000’s (Financial Promotion) Order of 2005 applies

It is therefore paramount that influencers consider their content from this perspective and work with an appropriately approved financial services business before including any such information on social media. 

Suitability, balance, and prominence: the principles of effective social media promotion 

An essential element to any financial promotion is balance and prominence, particularly where retail customers are concerned. This includes the need for the promotion to be clear; give equal prominence to information on risks and benefits of a product; and display any claims appropriately.  Firms are expected to clearly communicate to consumers to enable financial decisions to be made and supported with appropriate information and facts. 

Social media is an incredibly powerful tool for firms and influencers and the speed at which promotions can be in front of an audience is remarkable, but this has a downside. Suitability is a major component of financial promotions, and this needs careful consideration and control to ensure the information given meets the regulatory obligations; is in the best interest of the consumer; and is suitable for the audience. Moreover, the information must be clear, fair and not misleading–and contain sufficient information to enable consumers to make appropriate decisions. 

Some high-risk products have specific social media restrictions and are banned from mass marketing to retail investors. Complex or higher risk financial products may therefore not be suitable for promotion through this medium because the amount of information required, and their distinct target market will be difficult to achieve via social media. Unless a firm can ensure that promotions of products subject to these restrictions will not be viewed or received by retail investors, firms should not promote these investments on social media. 

Influencers and regulated firms who use social media for promotions should be mindful of the targeted amendments within the revised guidance published by the FCA. FG24/1 replaces the prior version (FG15/4) and lays out specific advice on ensuring social media financial promotions remain within the industry standards and obligations. It also provides additional clarity on when a communication might constitute a financial promotion. 

But firms and influencers should be aware this is not the only regulatory oversight of their promotional activity. For example:  

  • Wider regulation around online advertising is set out by the Advertising Standards Authority Ltd (ASA), as well as a recent update on their expectations of influencer advertising.  
  • The Market Abuse Regulation (MAR) applies to those who are producing or providing investment recommendations on social media. Under Article 20, anyone recommending or suggesting an investment strategy must make sure information is presented objectively and discloses any conflicts of interest.

Financial promotion strategy must now be on financial firms’ agendas  

The lesson from the FCA’s guidance is clear: unauthorised influencers who are communicating financial promotions without Section 21 approval from an appropriate authorised person are likely to be communicating an illegal financial promotion unless the promotion is exempt. 

Firms approving the financial promotions of influencers should therefore consider the demographics of the influencer’s audience and whether this audience is likely to show the characteristics of vulnerability. The firm must also beware its own liabilities and ensure it is playing an active role in ensuring the promotion remains compliant for its lifetime.  

The FCA is increasing its scrutiny of firms and individuals who fail to comply with these requirements. Indeed, the regulator removed over 10,000 misleading adverts in 2023–an increase from 8,500 in 2022. 

The new guidance is accompanied by a warning from Lucy Castledine, Director of Consumer Investments at the FCA. “Any marketing for financial products must be fair, clear and not misleading so consumers can invest, save or borrow with confidence,” she said. “Promotions aren’t just about the likes, they’re about the law. We will take action against those touting financial products illegally.” 

The above is not an exhaustive list of considerations and there are many aspects to the financial promotions regulation which with firms must comply. fscom has direct experience in working with clients in this area and can help you to navigate the rules and establish a compliant approach. Contact us today: click here.

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