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FCA’s Finanal Social Media Financial Promotion Guidelines

Social Media | April 2, 2024

FCA Compliant vs non compliant financial promotions on social media - FCA's Finanal Social Media Financial Promotion Guidelines

Image: FCA, Financial guidance for financial promotions on social media, compliant vs non-compliant

The Financial Conduct Authority (FCA) has issued finalized guidance on financial promotions on social media

The guidance, a 47 page PDF, is aimed at clarifying expectations for financial promotions communicated through social media and seeks to address and mitigate emerging consumer harm observed from social media use, ensuring that financial promotions across all advertising channels are fair, clear, and not misleading, thereby supporting consumer understanding.  Final guidelines have gone through two consultations, view the process here.

  • The FCA emphasizes that financial promotion rules are technology-neutral, applicable across various advertising mediums, including social media.
  • Firms must present a balanced view of benefits and risks in their promotions, facilitating informed decision-making among consumers.
  • The guidance addresses the role of unauthorized persons, such as social media influencers, stressing that promoting regulated financial products or services without the approval of an FCA-authorized individual may constitute a criminal offense. Firms working with affiliate marketers or trade bodies must ensure that these partners communicate financial promotions legally and compliantly.  Even influencers without commercial relationships with firms are subject to financial promotion restrictions and must have their communications approved.

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  • The guidance also points influencers to other applicable rules and standards, including the Advertising Standard Authority’s (ASA) requirements for upfront advertisement labeling in case of any form of payment.
  • Promotions must support retail customer understanding and decision-making under the Consumer Duty, requiring that financial promotions be standalone compliant, meaning each communication must individually comply with FCA rules.
  • Certain promotions, especially those for high-risk investments, must include prominently displayed risk warnings with prescribed wording, without being obscured by social media design features.
  • Firms are reminded of their ultimate responsibility for the compliance of promotions they initiate or are communicated on their behalf.

Example of Compliant Versus Non-compliant

The financial guidance document event contains comparative promotional image examples.  Can you spot the difference?

 

FCA social media and financial promo guidance comparing two advertisements - FCA's Finanal Social Media Financial Promotion Guidelines

Image: FCA Final Guidance of Financial Promotions on Social Media

Figure 3:  Considered Fine

  • The message is general and encourages starting a pension, which is a broadly acceptable suggestion.
  • It includes a risk disclaimer, "The value of your investment can go down as well as up," which is prominent and balances the promotion with a warning of risk, as required by regulations.
  • There are no specific financial claims made that could be considered misleading or that would require additional explanation.

Figure 2:  Considered a Bad Promotion

  • The specific claim that £1 daily could become £250,000 might be considered misleading by regulators if it does not adequately explain how this figure is reached, what the conditions are, and the associated risks.
  • While it mentions a 25% government top-up and an estimated 8% yearly growth, this may not provide the full picture required for a consumer to make an informed decision.
  • It presents the potential for gain without a balanced, prominent warning about the risk, which might not be sufficient to meet regulatory standards for fair warnings.

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The FCA regulators take issue with Figure 2 because it might give an unrealistic expectation of investment growth without adequately explaining the assumptions behind the projection, such as the period over which one would need to save to achieve this figure, the impact of inflation, and the fact that the 8% growth is not guaranteed.

VariableFigure 3 (Considered Fine)Figure 2 (Considered Bad)
Compliance with RegulationsMeets regulatory standards.Does not meet regulatory standards.
Clarity of MessageGeneral and straightforward message about starting a pension.Specific financial claims could be seen as misleading without more context.
Fairness and Misleading ContentContains a risk disclaimer that balances the promotion.May overstate the benefits of an investment without fair warning of risks.
Risk DisclaimerClear disclaimer about investment value fluctuation.Lacks a prominent, balanced risk warning.
Specific Financial ClaimsNo specific financial claims made.Makes a specific claim about potential investment growth.
Potential for MisinterpretationLow potential for misinterpretation.High potential for misinterpretation due to the specific claim made.
InformativenessLess informative about potential gains or investment strategy.More informative, but potentially misleading without proper context.
Projected Figures and AssumptionsNo projected figures or assumptions displayed.Projects a figure (£250,000) without clear assumptions or conditions.
Regulatory Red FlagsNone apparent based on the content provided.Specific claim about growth without adequate explanation may raise flags.
Overall Regulatory RiskLow risk of being flagged by regulators.High risk of being flagged by regulators for the reasons stated.

 

Considerations for Non-UK Unregulated Entities

The FCA's guidance on compliance for non-UK unregulated entities concerning the financial promotion regime emphasizes its broad territorial scope and the requirements for overseas communicators, particularly when using social media as a channel.

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Broad Territorial Scope:  The regime's reach includes communications that can affect the UK, regardless of whether they explicitly target UK consumers. This means any promotion viewable by UK consumers that could lead to investment activity falls under the regime.

Compliance Requirements:  Unauthorized entities must comply with the financial promotion restriction just like UK-based entities. This involves ensuring promotions are approved by an authorized person or meet exemption criteria under the Financial Promotion Order (FPO).

Exemptions and Steps for Compliance:  Article 12 of the FPO offers an exemption for promotions directed solely outside the UK, with specific conditions for determining eligibility.

Geo-blocking:  Compliance steps for non-UK entities may include getting financial promotions approved by an authorized person, geo-blocking promotions from UK consumers, altering communications to avoid invitations to invest, and setting controls to prevent UK consumer engagement. Implementing geo-blocking and other measures varies across social media platforms and may evolve with new technologies. Where restrictions are not viable, communicators might use warnings that promotions are not intended for UK consumers, though this alone is insufficient for compliance.

Shared social media accounts: Groups sharing social media channels face risks if promotions lead UK consumers to believe they are dealing with a UK-regulated entity, potentially under the misconception of regulatory protection.  Group entities must manage risks of breaching the financial promotion restriction, ensuring systems and controls prevent directing UK consumers to unregulated overseas entities.  Options include having UK authorized members approve promotions or creating UK-specific accounts with clear directions for UK consumers, avoiding "shell" accounts.

Conclusion

The FCA's final guidance on social media financial promotions is key in ensuring fair and clear advertising, safeguarding consumers against misleading content. It highlights the importance of transparency and compliance, particularly for influencers and international entities.

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As digital platforms evolve, adhering to these standards is crucial for maintaining market integrity and consumer trust, and for remaining in compliance with evolving regulations.

Download the 47 page PDF report --> here


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