Social media is increasingly becoming central to our lives, with different platforms being used for differing purposes. However, it is important for firms and individuals on these platforms to remember their responsibilities when publishing something that may be deemed to be a ‘financial promotion’. Just because social media is seen as ‘new media’ does not mean that obligations on firms and individuals ebb. The FCA’s guidance FG24/1, published in March 2024, reaffirms this position and reminds the market of their responsibilities, focusing on the social media space.
What is a Financial Promotion?
A financial promotion is defined by the Financial Services and Markets Act 2000 within Section 21 as an invitation or inducement to engage in investment activity, communicated by a person in the course of business. Therefore, if any social media posts, or any other material produced by a firm, fits within this definition then it will be considered a financial promotion. In these circumstances firms will then be required to follow the financial promotions rules to remain compliant.
Put simply, when producing material firms need to ask themselves what they are looking to achieve when publishing that material. If the aim of the material is to generate business for the firm, then it is likely to be considered a financial promotion under the definition above. Thus the relevant rules must be followed to ensure compliance.
FCA’s Expectations
Within FG24/1, the FCA outlines its expectations for information discharged through social media that would be considered a financial promotion. These are as follows:
- Communications are standalone compliant with the FCA rules including features of:
- Requirement for prominence of information e.g. risk warnings being in the same sized text and not made smaller.
- Target audience consideration e.g. if for retail clients information is presented in an understandable manner, such as removal of industry buzzwords that they may not understand.
- Fair display of messages, e.g. including risk warnings within video or image content to ensure viewer sees the information and not relying on external captions.
- Promotions provide a balanced view, e.g. through the inclusion of the benefits of investment but also the risks warnings.
- Consideration of the suitability of social media to promote products e.g. specialist investments in debt instruments would not be suitable for a general social media channel such as X (formerly Twitter).
- Where a high risk investment is to be promoted, Firms must be familiar with the relevant COBS 4 restrictions applicable, e.g., non-mainstream pooled investments and speculative illiquid investments such as some mini bonds cannot be mass marketed to retail investors. Others, such as CFDs and cryptoassets can be mass marketed but with certain restrictions.
- Risk warnings will inevitably be needed and certain products must have specifically worded warnings accompanying them.
- Some products require a complete prescribed risk warning to be used so care must be taken where platforms use truncated text and that the warning is visible throughout the promotion and not only via a click through link.
- Where truncated warnings are allowable by the FCA, the full shortened clause must be visible and the full warning made available via a click through link.
- Firms working with affiliated marketers, such as influencers, need to be monitored closely to ensure any post remains complaint e.g. continuously screening content produced as part of the partnership. Any breaches will be lodged not only on the individual marketeer but also the underlying firm.
- Even if an influencer is not affiliated with a firm, in instances where the influencer’s posts relate to financial products, e.g. a user of a financial product posts on X regarding their experience and makes recommendations, those posts will still be held up against the financial promotion rules.
- Unauthorised persons, such as influencers, who without the approval of an FCA authorised Firm promote financial products or services that are subject to regulation may be committing a criminal offence e.g. promoting investment in CFDs to their followers.
- Influencers need to consider if they are the right person to promote financial products as well as considering what other standards they need to meet, e.g. the Advertising Standard Authority requirement to label posts as advertisements when receiving payment for the post.
- This point is particularly prominent with nine influencers being charged in May 2024 for promoting an unauthorised foreign exchange trading scheme via social media with the charges being brought by the FCA.
Non-UK firms also need to be aware of these facts as the territorial scope of the financial promotions regime is broad, extending to communications that are capable of having an effect in the UK even if the original post was produced outside the UK. Therefore, non-UK firms must consider if the UK market is capable of interacting with any financial products they offer. If so, even if the Firm is non-UK based, the financial promotion rules will apply. This is summed up in PERG 8.8.1G which states ‘it is irrelevant whether the communication has an effect provided it is capable of doing so’.
Consumer Duty Considerations
Alongside the financial promotions rules, firms must consider the Consumer Duty when making posts on social media. It is important to remember that social media spaces are filled with retail customers and therefore any posts need to consider the potential impact on recipients on those platforms. Therefore, the FCA wants firms to consider their obligations, namely ensuring financial promotions support retail customers’ understanding and communicating information to retail customers in a way that equips them to make effective decisions.
Firms are also required to identify a target market and to tailor communications accordingly, as well as the communication channel used, for that target market. It is therefore important that Firms use the target market information for each product being promoted and ensure that the intended market is able to understand all features of any financial promotion as well as selecting the appropriate social media channel to capture participants in that market.
Firms should utilise filtering systems to ensure that only their target market is able to view selected content and allows control of the spread of information to maintain financial promotions compliance. These elements can be achieved with regular consumer testing ahead of launching any product.
Reposting Social Media Posts
One of the advantages of social media is the reach posts have, especially through the power of reposting content by other accounts. However, this also comes with its dangers for Firms, as this could broaden their audiences beyond the intended audience and therefore financial promotion warnings and wording need to reflect this fact. The FCA clearly states within FG 24/1 that the responsibility for any post is that of the originating firm, even if a breach occurs due to the content being reposted inappropriately. This is something that Firms need to keep in mind.
Conclusion
The guidance provided in FG24/1 clearly shows FCA’s intent to continue to protect customers within the market. Firms need to ensure that they take the guidance provided on board and review their current financial promotion process and strategy, and make any necessary amendments when weaknesses are identified.
When firms are working with influencers, they must be vigilant to ensure the individual is appropriate for the product being promoted. Alongside this firms need to ensure that monitoring processes are in place to ensure the influencers posts are compliant and remain compliant moving forward.
At Complyport we have extensive experience with the financial promotions process and the applicable rules/expectations of the FCA. We offer the following:
- Review and screen financial promotions;
- Review financial promotions systems and procedures; and
- Perform a historic financial promotions review and provide feedback; and
If your firm requires assistance, get in touch by completing the form below to book a free consultation.
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