On 16 May 2024, the Financial Conduct Authority (“FCA”) brought charges against nine social media influencers in an unprecedented case. On 13 June 2024, at Westminster Magistrates’ Court, three out of six defendants indicated pleas of not guilty. The plea and trial preparation hearing has been fixed for 11 July 2024 at Southwark Crown Court for these six defendants. The first hearing of the remaining three defendants will take place on 3 July 2024. The case comes as part of the FCA’s initiative to crack down on so called “finfluencers”, those who use their platform to promote illegal financial products or services and, in some cases, offer advice on buying and selling investments.
What are the allegations?
The high profile ‘finfluencers’ are charged in relation to the promotion of an unauthorised foreign exchange trading scheme on social media sites. It is alleged that between 19 May 2018 and 13 April 2021, two of the influencers had been providing advice on buying and selling Contracts for Difference (“CFDs”) when they were not authorised by the FCA to do so. Allegations against the rest of the individuals relate mainly to the issuing of unauthorised financial promotions. As a collective, the “finfluencers” were able to reach some 4.5 million followers. It is important to note that the unauthorised financial promotions and investment advice were targeted at retail consumers, causing immeasurable harm to consumers. It should come as no surprise that the FCA has taken this case very seriously, in line with the Consumer Duty.
CFDs are notoriously high-risk derivatives. The FCA has previously said that 80% of customers lose money when investing in CFDs because of the disproportionate and hidden risks. They are often highly leveraged, which means they use debt to try and amplify returns, which can result in investors losing more than they invested. In the UK, the FCA has imposed restrictions on how CFDs and CFD-like options can be sold and marketed to retail customers. The FCA has also been carrying out work to address consumer harm in the UK in this sector.
Consequences of the breaches
If found guilty, the consequences the nine defendants could face under the current law are not as hard-line as one might assume given the gravity of the cases. Nevertheless, breaching the General Prohibition is an offence under Sections 19 and 23 of the Financial Services and Markets Act 2000 punishable upon conviction by a fine and/or up to 2 years’ imprisonment. Communicating unauthorised financial promotions is an offence under Sections 21 and 25 of the Financial Services and Markets Act 2000 punishable upon conviction by a fine and/or up to 2 years’ imprisonment.
What can Firms and Finfluencers do better?
Social media has long been viewed as a grey area in regulation, with firms and influencers crossing the line into regulated activity, often with no consequences. It is clear however, the charges brought against these nine influencers are set to change the tone. The FCA has published finalised guidance on financial promotions on social media to clarify their expectations for when firms and influencers use social media to communicate financial promotions, and to address emerging consumer harm that has been arising from the use of social media.
The outcome of this case is yet to be determined as we await the final decision. Should the “finfluencers” be found not guilty, this would have detrimental consequences for both the FCA and the consumer. It is unlikely that this will be the case. However, should the influencers be found guilty but given a limited penalty, this could also be detrimental. The investigation that led to the case and charges being brought by the FCA should no doubt serve as a warning to firms and influencers with regards to their use of social media in the course of business. As social media continues to grow as a method of obtaining business, the FCA will continue to monitor and crack down on its use.
How can Complyport help?
At Complyport, we have expertise in Financial Promotions, Consumer Duty, Website, Social Media compliance and Authorisations to undertake regulated activities. We can provide guidance to firms and individuals to help ensure you remain compliant.
Our services:
- Financial Promotion reviews
- Consumer Duty guidance and implementation
- Consumer Duty Assessment
- Authorisations for individuals and Firms
- Website and social media compliance
- Ongoing compliance support
- Staff training
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