The growing integration of social media in marketing strategies for firms, particularly in the financial sector, has revolutionized how businesses interact with consumers. The AA/Warc Expenditure Report reported that in 2021, the UK social media advertising market was worth £6.4 billion, nearly a third of all internet advertising spend. Yet, despite its far-reaching influence, social media’s complex nature has made it a double-edged sword, with significant potential of causing consumer harm through poor quality financial promotions.
Why is high-quality information important?
Consumers rely on various channels for information, including social media. Financial promotion rules are technology-neutral and should apply consistently across all platforms, from traditional billboards to trending TikTok videos. The aim is clear: providing consumers with high-quality, fair, and reliable information to make informed decisions.
The Rise of Financial Influencers
Another significant trend is the increasing presence of financial influencers, or 'finfluencers,' especially on platforms like Instagram and Twitter. Influencers are individuals who have gained popularity on platforms like Instagram and Twitter, where they offer financial advice and insights. Many finfluencers target younger consumers who are more likely to trust their recommendations. The Issue- Promoting a regulated financial product without approval from an FCA-authorised individual may result in criminal charges (up to two years in prison!). The influence is staggering: 74% of 18- to 29-year-olds say they trust these influencers, and nine in ten people purport to have changed their financial behavior based on their advice.
Evolving Guidelines for a Changing Landscape
Existing guidance on social media and customer communications, has become outdated and will be retired soon. The guidelines had primarily focused on character-limited platforms like Twitter but ignored the role of influencers entirely. It also failed to account for emerging platforms like Discord and Threads, and didn't address new business models like buy-now-pay-later services or crypto assets.
Alarm Bells: Poor-Quality Promotions
A startling 69% of financial promotions in Q4 2022, which were either amended or withdrawn after intervention, involved website or social media promotions. This statistic underscores the gravity of the issue: misleading or unfair promotions are not merely isolated incidents but represent a systemic problem.
A Younger Audience and the Pandemic Influence
Since the pandemic, more young consumers have entered the investment market. A notable 58% of investors under 40 credited social media hype and news for their high-risk investment decisions. This indicates that the quality of social media promotions has a direct impact on consumer behavior and financial well-being.
What are the legal and regulatory responsibilities?
The Financial Conduct Authority (FCA) wants to be proactive, taking steps to clarify its expectations for financial promotions on social media via a guidance consultation. This will include detailing obligations under the Consumer Duty which aims to ensure better outcomes for retail customers.
Equality and Diversity
Under the Equality Act 2010, the FCA has the responsibility to ensure that its guidance does not discriminate against individuals with protected characteristics. As the current landscape may make these individuals particularly susceptible to misleading promotions, the updated guidance seeks to protect all consumers uniformly.
What's changing in social media financial promotions?
In recent years, the digital world has witnessed a paradigm shift in the way financial promotions are approached on social media. Recognizing the evolution of this space, the Financial Conduct Authority (FCA) has proposed vital amendments to its guidelines.
Retaining Core Principles
Firstly, while the FCA has held on to the essential principles of FG15/4, there’s a refreshed focus on ensuring financial promotions are standalone compliant. What does this mean? While the key expectations on the prominence of vital information remain unaltered, the guidance offers clarity on its application across various social media marketing channels. More interestingly, the FCA also delves into the design nuances of social media platforms, especially when they unintentionally obscure essential information.
Tackling Emerging Marketing Trends
The FCA hasn't turned a blind eye to the rising trend of affiliate marketing. The guidance underlines that firms must actively monitor the communications of affiliates. This proactive approach ensures consumer protection and also curtails potential harm when UK consumers engage with promotions directing them to non-UK entities, erroneously thinking they’re dealing with an FCA-regulated firm. The guidance strongly suggests mitigation techniques for firms while emphasizing that any communication with potential effects within the UK will be subjected to the established rules.
Influencers and the Financial Promotion Landscape
A noteworthy section of the guidance addresses the potential harm from influencers communicating approved financial promotions. Emphasizing PS22/10, the FCA has fortified requirements for approvers of promotions, especially for high-risk investments (HRIs). The FCA makes it clear that firms should maintain an active role, ensuring consistent compliance of communications throughout its lifetime.
Further, the blurred lines surrounding unauthorised influencers promoting financial products have been addressed head-on. The assumption that direct monetary compensation is a precursor for a post to fall within the financial promotion regime has been debunked. For clarity, additional guidance has been laid out in relation to financial promotions on social media under Section 21 of the Financial Services and Markets Act 2000.
Senior Management Arrangements, Systems and Controls (SYSC)
Firms are reminded that under SYSC, they are obligated to establish and maintain appropriate systems and controls for promotions. If influencers are used for promotions, it is essential to ensure that they fully understand the product and are aware of relevant rules.
Product Suitability for Social Media Promotion
Certain financial products may not be well-suited for promotion on social media platforms. Complicated services like debt counselling might not be effectively communicated through media that offer restricted space.
Debt Counselling Services
The FCA warns against the imbalance in promoting debt counseling services that don't provide adequate information about the risks or costs involved. Firms should also note that platforms like TikTok prohibit advertising of certain products, including debt assistance programs.
Buy-Now-Pay-Later (BNPL) Products
Recent guidance warns against poor quality promotions of BNPL products. Such promotions must include relevant risks, such as unregulated credit agreements, consequences of missed payments, and details about when charges become applicable.
Memes and Unregulated Entities
Even memes are considered financial promotions and fall under FCA’s regulation. This is especially prevalent in the cryptoasset sector. Moreover, UK consumers can face harm when directed to unauthorised non-UK entities. Firms are suggested to use strategies like geo-location techniques or having a solely UK-focused social media profile to mitigate this risk.
Risk Warnings
Risk warnings or other statements must be included in promotions for specific products/services. Risk warnings are required to be displayed prominently at the time of, or just before, the communication of the promotion. Platforms using features like truncated text should ensure that the warning is clear and doesn’t require click-through to access.
High-Risk Investments
Firms must be cautious when promoting high-risk investments (HRIs) like crowdfunding, cryptoassets, and contracts for differences (CFDs). Mass marketing of certain investments, such as non-mainstream pooled investments and speculative ‘mini-bonds’, is banned.
How does this relate to Consumer Duty?
Coming into force on 31 July 2023, the Consumer Duty will require firms to align their marketing strategies with delivering good outcomes for retail customers. Firms are reminded that all communications, including those on social media, should be clear, fair, and not misleading.
Excessive Targeting and Vulnerable Consumers
One of the key issues outlined by the FCA is the problem of consumers being bombarded by financial promotions from the same firm or service on social media platforms. The FCA notes that this practice could exploit behavioural biases, especially among vulnerable consumers. The FCA suggests that firms need to reflect on whether their marketing strategies are enabling good consumer decision-making.
Suitability of Social Media for Financial Promotions
Not all products or services may be suitable for promotion via social media. Firms should evaluate factors such as the complexity of the product and the likely audience on social media platforms. The FCA advises that social media could serve as a signpost, directing potential customers towards channels where more comprehensive information can be provided.
Monitoring and Adaptation
Firms should regularly test, monitor, and adapt their communication strategies, particularly as social media evolves. The FCA has published several research papers and operational notes like OP17, OP23, which could help firms in shaping consumer-friendly strategies.
Regulatory Compliance and Third-party Sharing
In the case of retweets or other forms of third-party sharing, the FCA reminds firms that they are still responsible for any original non-compliance. Additionally, firms should consider the risks of promoting products with a restricted target market on social media, given its broad reach.
Legal Requirements for Electronic Marketing
Firms need to be aware of specific legal requirements under the Privacy and Electronic Communications Regulations 2003 (PECR) and the Information Commissioner's Office Direct Marketing guidance. The FCA also points out that "cold calling" falls under specific regulations such as COBS 4.8 and MCOB 3A.3.5.
Approval and Record-Keeping
Firms are obligated to have an adequate system for signing off digital media communications, and this should be done by someone with appropriate competence and seniority. Furthermore, the FCA cautions against relying on social media for record-keeping.
The Rise of Affiliate Marketing and Influencers
Affiliate marketing has become a common part of many firms’ strategies, where they pay commission based on business generated from referrals. However, the FCA reminds firms to take proactive responsibility for how their affiliates communicate financial promotions.