FCA Issues a Warning: Firms and Finfluencers Face Criminal Charges for Misleading Ads

The FCA has published updated guidelines on financial promotions on social media. The regulator warns that firms and individuals engaged in misleading "finfluencing" may be committing a criminal offense.

Financial influencers

The Financial Conduct Authority (FCA), the UK's financial regulatory body, has issued a warning to firms and influencers engaging in the promotion of financial products and services. The press release "advertises" the recently published new finalized guidance on financial promotions on social media. The FCA points out that regulations apply to all content formats, including memes, reels, and gaming streams and impose accountability on companies and influencers alike.

According to the guidance, firms that employ social media in their marketing strategies "are on the hook" for all their promotional activity. Consequently, they need to make sure their contractors communicate with the public without violating regulations through false or misleading claims.

Under the Consumer Duty (aka the Duty, the FCA's standard for improving consumer protection for financial-services firms), financial promotions are required to help retail customers understand a given product or service by providing a balanced risk-benefit view, so that they can make informed decisions and achieve favorable results. The new guidance stresses that each communication must comply with the FCA's rules when considered individually.

Businesses should also be aware that certain promotions require detailed information, including prominently displayed risk warnings with specific wording. Additionally, firms have to display the information properly. For example, in ads for high-risk investments (HRIs), the warning should remain visible throughout the promotion, unobscured by any design elements of the social media platform.

Businesses' responsibility extends to the collaboration with affiliate marketers, including influencers. Firms must ensure that their contractors communicate the offer in compliance with regulations, which entails implementing oversight over affiliates. Ultimately, firms are liable for the compliance of their financial communication.

According to earlier regulations, companies can approve a financial promotion only if granted permission by the FCA. This extends to influencers, who are not allowed to promote a financial product without an approval from an FCA-authorized person. Marketers who violate this rule risk being held responsible for a criminal offense.

The updated guidance clarifies that "even when an influencer does not have a commercial relationship with a firm, their communications on social media about financial products or services may still be subject to the financial promotion restriction and require approval to communicate." To avoid trouble, influencers need to assess if they're suitable for endorsing a product or service. They should also review other rules and standards that may be relevant to their actions.

The FCA has been tightening the screw on finfluencing due to a growing number of online frauds and has significantly ramped up the scrutiny of financial promotions. Last year, the FCA removed more than 10,000 misleading advertisements, an increase of 1,500 compared to 2022. It has also extended the scope of targeted content. In 2023, the regulator proposed a new regime under which certain crypto memes may be qualified as illegal financial promotion.