FCA clamps down on ‘finfluencers’ hiding financial risks in their content
The Financial Conduct Authority has issued new rules to clamp down on financial influencers, or ‘finfluencers’, hiding the risks of the products they’re promoting.
In a report today, the FCA laid out details on how finfluencers and companies on social media should be appropriately including the risks of the products they’re promoting, while also not exaggerating their potential gains.
Nearly 80 per cent of millennials and Gen Z have used social media to source financial advice, while 43 per cent of Gen Z believe they can source good financial advice on social media, according to a survey from the Financial Services Compensation Scheme last year.
Therefore, the FCA said new rules around how finfluencers share products that carry a financial risk, due to wide variety of offenders.
For example, the regulator said it had seen videos or images that include all the benefits of products while leaving the risks in the caption, which would be breaking the law under the new rules.
Meanwhile, important information about the risks of investing hidden behind truncated text (such as behind a ‘see more…’) that can’t be easily seen by consumers is also against the new rules laid out today.
On Tiktok and Youtube, the risk warning should be “clearly and prominently displayed across the screen throughout the financial promotion” rather just in the caption or at the end of the video.
Meanwhile, in Instagram posts or other social media which allows multiple pictures to be posted, finfluencers should make risk warnings “clear and prominent in every slide”.
The new regulations apply to general financial advice and product promotion, with crypto advertising falling under more detailed rules that came into place in January.
Due to the character limited nature of social media, the FCA said it may even be more appropriate to use ‘image advertising’ to promote a financial company more generally, meaning without the promotion referencing specific products or services.
They gave examples of debt counselling and buy now pay later as industries where they said it was likely that social media did not have the space to explain the complexity and risks around.
Affiliate marketing, where a company pays a finfluencer to promote their products, is a huge area, and the FCA warned that “the firm would be liable for the compliance of that financial promotion”, even if made by the affiliate.
This means that companies “should take appropriate steps to ensure any such influencer understands the product or service they are promoting and is aware of relevant regulatory requirements”.
“It would be inappropriate for investment firms to work with influencers whose content centres around tips on how to quickly get out of debt,” or other areas that might not be appropriate, the regulator added.
Even if finfluencers aren’t directly being paid by the financial schemes they’re promoting, if they gain a monetary benefit from the success of their forum, such as through selling courses about investing, then they are ‘acting in the course of business’ and regulated by the FCA.
Lucy Castledine, director of consumer investments at the FCA, said: “Any marketing for financial products must be fair, clear and not misleading so consumers can invest, save or borrow with confidence.
“Promotions aren’t just about the likes, they’re about the law. We will take action against those touting financial products illegally.”