On 22 October 2024, the FCA announced that 20 social media “finfluencers” are being interviewed under caution under its criminal powers. It has also issued 38 new alerts against social media accounts which may contain unlawful promotions as part of a “targeted action” it is launching against finfluencers advertising financial services products illegally.
These are the latest in a series of measures taken by the FCA in this regard, having issued guidance and a warning to finfluencers in March 2024 (here), and announcing in May 2024 that it had commenced criminal prosecutions against a number of finfluencers in relation to an unauthorised foreign exchange trading scheme (here), alleging these individuals had contravened the rules against financial promotion in sections 19 and 21 of the Financial Services and Markets Act 2000 (FSMA).
Background
In March 2024 the FCA published guidance for financial promotions on social media (here) (the Guidance). Each promotion must communicate information in a balanced manner that is compliant with the FCA’s Consumer Duty (see overview here) so consumers can make effective, well-informed decisions. Firms should therefore proactively monitor their affiliates because they are ultimately responsible for how their affiliates communicate. Unauthorised persons, such as influencers, who promote regulated financial products without approval from an FCA-authorised person may be committing an offence (punishable by up to 2 years imprisonment, an unlimited fine, or both).
Who can be held liable?
Under section 21 FSMA, a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity, unless (i) the financial promotion is communicated by an authorised person, (ii) the content of the promotion is approved by an authorised person, or (iii) an exemption applies. “Communicate” includes causing a communication to be made.
As such, the financial promotions regime is applicable both to firms who engage affiliate partners (i.e. influencers), and to the influencers themselves.
Influencers will be in breach of s. 21 if they are: (i) sharing non-compliant financial promotions, even if they are approved by an authorised person; or (ii) making unauthorised, illegal financial promotions. This would include: celebrities who are compensated for promoting financial products; “finfluencers” who share their recommendations regarding financial products without FCA authorisation, and forums and discussion groups that encourage individuals to engage in personal chats outside the platform, to sell financial advice or products.
Firms will be in breach of s. 21 where they cause a financial promotion to be communicated (i.e. by engaging an affiliate influencer), and that promotion fails to meet the required standards.
What constitutes a financial promotion?
A financial promotion can take any form (e.g. a social media post or direct messaging) if it includes an invitation or inducement to engage in investment activity. The communication must be made ‘in the course of business’, meaning the influencer must have a commercial interest in it. However, this does not refer strictly to direct compensation – it can include (i) influencers promoting services so they can generate revenue from a potential future relationship, (ii) promoting services that a social media platform compensates them for, so they can ask for a higher fee in future brand deals, or (iii) promoting services via “affiliate links”, where the influencer receives compensation once a consumer makes a purchase via the link.
Good practice for firms working with affiliate partners
The Guidance sets out certain examples of good practice for firms operating through social media and affiliate partnerships with influencers, including the need to ensure that influencers understand the product or service that they are promoting, and are aware of any regulatory requirements that apply to them. The Guidance also highlights the importance of monitoring any affiliated insurers, having in place up to date affiliate policies, and the need to terminate policies where there are continued non-compliance issues.
Key takeaways
Protecting consumers and combatting fraud remains high on the FCA’s agenda, and the FCA is very alive to the risks to consumers online. The FCA has observed that nearly two-thirds of 18–29-year-olds follow social media influencers, 74% of those said they trusted their advice and 9 in 10 young followers have been encouraged to change their financial behaviour, highlighting the internet’s prominent role in enabling fraud. Ensuring finfluencers abide by the regulatory framework is therefore essential if the FCA is to achieve its objectives. Firms that work with online influencers should take note, and ensure they follow the Guidance when working with any affiliates, to avoid getting caught in the crossfire.
