FCA social media guidance set for refresh

Summary of the FCA social media guidance together with common issue highlights and steps how firms should best prepare.

In July 2023, the FCA announced its guidance consultation for financial promotions on social media (GC23/2).

In recent years, social media has increasingly become a go-to source of information for consumers. Accordingly, it is crucial that consumers can trust the information they receive online about financial products and services.

Why is the FCA consulting?

The new guidance will supersede and replace the previous FCA guidance on social media (FG15/4) from 2015. The key principles remain the same, with adjustments to reflect the changing nature of social media in the past 8 years.

Two significant changes to the social media landscape have been: (i) the emergence of alternative social media platforms (eg Discord, TikTok); and (ii) the increasing use of social media influencers (finfluencers) to promote financial services and products.

Key social media guidance summarised

  • The FCA retains the same expectations regarding standalone financial promotion compliance and prominence;
  • The Consumer Duty elevates expectations above the Principle 7 requirement to ensure that communications are clear, fair and not misleading. Firms should regularly test, monitor and adapt communications to support good consumer outcomes in accordance with the Consumer Duty and Principle 12;
  • There are enhanced expectations around affiliate marketing oversight;
  • Firms should ensure that consumers are not unknowingly directed to non-UK entities;
  • Firms should play an active role in the ongoing approval of financial promotions; and
  • Caution around use of ‘finfluencers’ to communicate financial promotions.

Definition of Financial Promotion

“Under Section 21 (S21) of the Financial Services and Markets Act 2000 (FSMA), a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity.”

This financial promotion restriction does not apply if: the promotion is communicated by an authorized person; the content of the promotion is approved by an authorized person; or an exemption in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO) applies.

Any authorized person approving financial promotions on behalf of third parties should read our article on the  FCA’s financial promotions gateway if you wish to continue this activity.

Common issues

  • When communicating on social media, you lack control over the onward distribution of your message and must consider the risk of it ending up in front of a non-intended recipient;
  • Influencers communicating financial promotions on social media without understanding the product, service or relevant rules;
  • The FCA has observed memes and other similar communications hyping up specific investments on social media chat rooms, without the poster realising that all communications are subject to the financial promotion rules, regardless of the format;
  • Where an affiliate marketer is communicating a financial promotion containing a firm’s referral link, but the firm does not have oversight of the communication, the firm fails to realize that it may be liable for the content of that communication;
  • Certain design features of specific social media platforms can obscure important information or risk warnings (refer to Table 1 on page 19 of GC23/2 for relevant prominence standards on social media channels);
  • Lack of understanding that high-risk investments are subject to specific financial promotion restrictions;
  • Use of marketing techniques targeting behavioral biases which are not suitable for vulnerable customers, for example repeatedly bombarding customers with financial promotions from the same service or firm; and
  • Sharing or retweeting a customer’s social media post without considering whether the content constitutes a financial promotion communicated by the firm.

How can firms prepare?

  • Review and update financial promotions policies and procedures to ensure the approval and monitoring processes are robust;
  • Ensure that Principle 12 is explicitly considered as part of the ongoing approval process and that approved financial promotions continue to support good customer outcomes;
  • Maintain adequate records of approved financial promotions, including those which have been communicated digitally, and do not rely on digital media channels to maintain records;
  • Share this guidance with your affiliates (including any introducers, appointed representatives or finfluencers) who are promoting the firm’s services or products;
  • Consider how you can monitor the marketing actions of your affiliate partners to ensure good customer outcomes, and how many partnerships the firm can viably maintain before adequate monitoring is no longer possible;
  • Ensure that when using finfluencers, both the firm and the finfluencer are familiar and compliant with requirements under the financial promotions gateway;
  • Review arrangements directing UK customers to overseas group companies, consider clearly distinguishing between firms providing financial services in different jurisdictions, for example separate websites or restricted access controls using IP addresses to verify customer locations;
  • Cryptoasset firms should familiarise themselves with both PS23/6 and GC 23/1 before communicating financial promotions on social media; and
  • Assess how suitable social media is for the promotion of each product or service, considering the complexity and intended target market. It may be possible to signpost a product or service with a link to more comprehensive information, provided that the promotion remains standalone compliant.

Lewis Gurry, director at C & G Regulatory Solutions, has experience managing and delivering complex regulatory change projects as an executive and group compliance officer in FICC markets.