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The UK’s financial regulatory body has introduced new proposed guidelines to regulate the marketing of financial products on social media platforms. This move aims to prevent significant harm to consumers caused by inappropriate and illegal promotions.
The Financial Conduct Authority (FCA) has initiated a consultation on applying its consumer duty regulations, which require banks, insurers, and other financial institutions to prioritize customer satisfaction, to social media posts.
Lucy Castledine, the FCA’s Director of Consumer Investments, stated that there has been an increase in advertisements that do not meet the current guidelines for consumer protection, and enforcement actions will be taken against those promoting products unlawfully.
The FCA has expressed concerns about the promotion of risky financial products by “finfluencers” to their large followings, as well as the use of social media celebrities to endorse services they may not fully understand.
According to the FCA, consumers place a high level of trust in “finfluencers,” but their advice is often misleading. Many of these influencers lack the necessary expertise, resulting in numerous illegal or non-compliant promotions.
A survey conducted by the FCA in 2021 revealed that almost 60% of individuals under the age of 40 who invested in high-risk products made their decisions based on social media posts and news articles.
Under the proposed guidelines, companies will be expected to monitor how influencers use their affiliate links to ensure responsible communication with customers. The regulations will also cover memes and similar content used to promote high-risk cryptocurrency investments.
In the UK, digital assets have faced increased scrutiny, with crypto fraud losses reaching £306mn in the 12 months leading up to March 2023, a 40% increase from the previous year. Starting October 8, separate rules regulating the marketing of digital currencies, including the prohibition of referral bonuses, will come into effect.
The FCA has stated that non-UK companies whose financial promotions are accessible to UK consumers will also be subject to the proposed social media rules, potentially impacting large crypto exchanges based in other jurisdictions.
The proposed regulations may encompass advertisements for buy now, pay later services, debt counseling, peer-to-peer lending, and personal loans.
The FCA’s announcement coincides with the progress of the Online Safety Bill in the House of Lords. This long-awaited legislation will impose a duty of care on large online platforms to protect users from fraudulent activities, including investment scams and harmful content.
The FCA’s broader consumer duty regime, which takes effect at the end of this month, has raised concerns among financial services executives. They fear that it could lead to an influx of baseless lawsuits and create a significant administrative burden. City Minister Andrew Griffith has also privately criticized the reform.
The consultation period for the FCA’s social media marketing guidelines will end on September 11, with the finalized guidance expected to be released later in 2023.
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