The Financial Conduct Authority (FCA) recently published a consultation paper on social media guidance for firms promoting financial services and products.
The draft guidance does not contain anything new so far as "dos and don'ts" for promotional material - including the new rules set to come into force on 8 October this year regarding promotion of crypto-related investments (see relevant article here).
However, with what it grapples is the preponderance of social media posts by "finfluencers" and some astonishing statistics, such as 58% of those under 40 years of age "who have invested in high-risk investment products" who have told the FCA that "social media lies behind their investment decisions," and 74% of those who follow "finfluencers" saying that they trust the advice they receive.
The Securities and Exchange Commission (SEC) in the United States has come down hard on some media personalities, including Kim Kardashian and basketball player Paul Pierce, for promoting tokens without disclosing their monetary interests in doing so. Other celebrities, such as Matt Damon and Larry David have also come under fire for their involvement in advertisements for crypto-related businesses.
It appears that the FCA is following the SEC's path. Social media posts will be treated as any formal promotion or inducement to make trading or investment decisions: risk warnings will need to be included; and there will be mandatory cooling-off periods for decisions.
This should come as no surprise, given that back in 2013, the FCA's Martin Wheatley (then-chief executive) stated that the caveat emptor principle was "hard to defend" and the imminent introduction of the new Consumer Duty.
However, there are a number of complex issues with which the FCA and industry must grapple:
- how to monitor "finfluencers" and their posts, and
what to do once a post is identified: on 8 July, the Financial
Times published an article regarding UK Finance's plea to the
UK government – in relation to the data they had gathered
which indicated that 61% of "all reported authorised push
payment fraud by volume is connected to Meta" (which owns
Facebook, Facebook Marketplace, Instagram and WhatsApp) – to
force technology companies to take responsibility for the content
on their sites, something which has proved very difficult to
do;
- to determine what is (or is not) an "adequate risk
warning": the FCA provides (on page 16 of the Consultation) a
side-by-side example of a "non-compliant" and a
"compliant" promotion; it is the author's humble
opinion that if one was scrolling through social media in the
ordinary way, the differences between the two do not leap-out; in
any case, the FCA states that the 'take 2 mins to learn
more' statement is not required "if its inclusion is not
possible"; so confusion might well reign for some time
(although to give the FCA credit, it has provided multiple examples
of risk warnings and its expectations);
- who has jurisdiction: the FCA provides an infographic from the
UK Advertising Standards Agency (see page 24) and what happens
where the "finfluencer" is overseas; and
- how to identify a "finfluencer" and to make a "finfluencer" aware of their responsibilities: the FCA has (rightly) turned to a definition of the individual "acting in the course of business" (and given examples, starting on page 26), however, it is also possible that a social media post could promote (or the opposite) a financial product or service dues solely that that individual's personal interest in it – for example, those engaged in pump-and-dump or trash-and-cash schemes do not need to have any relationship with the product/service provider (and, of course, many tokens will not be subject to the traditional market abuse rules in any case).
We encourage all firms, even those which are involved in creative token applications (such as promotional NFT issues) to consider this Consultation and the issues surrounding it carefully.
Originally published 18 July 2023
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