Likes to liability: UK FCA cracks down on 'finfluencers'

This decision closely follows the recent publication of the FCA's guidance on financial promotions on social media and is a cautionary warning for firms and individuals alike.

Background 

Social media is becoming an increasingly important part of firms' marketing strategies and it is against this backdrop that the FCA published its guidance on financial promotions on social media (the Social Media Guidance) in March 2024. The accompanying FCA press release made clear that marketing for financial products, through whatever channel, must:

• be fair, clear and not misleading; and
• comply with the restrictions on financial promotions set out in section 21 of the Financial Services and Markets Act 2000 (FSMA).

The regulator also warned that it would take action against those touting financial products illegally. 

FCA's first finfluencer prosecution

The FCA has been true to its word and recently brought criminal charges against nine reality TV stars or social media 'finfluencers' in relation to the promotion on social media of an unauthorised foreign exchange trading scheme relating to contracts for difference (CFDs), an investment product the FCA considers to be high-risk. 

The FCA alleges that between 19 May 2018 and 13 April 2021, two individuals used a social media  account to provide advice on buying and selling CFDs. It further alleges that one of the individuals paid seven other individuals to promote the Instagram account to their combined 4.5 million followers. Charges have been brought against all nine individuals on one count of unauthorised communications of financial promotions contrary to section 21 of FSMA. One individual also faces one count of breaching the general prohibition on conducting authorised activities without FCA authorisation, contained into section 19 of FSMA. The offences are punishable upon conviction by a fine and/or up to two years' imprisonment.

What counts as a ''financial promotion''?

A financial promotion is an invitation or inducement to engage in investment (or claims management) activity. Any form of communication is capable of being a financial promotion although the communication must be made ''in the course business''. 

Financial promotions can cover a wide range of financial products and services, including consumer loans, investments, insurance, pensions, mortgages and certain qualifying cryptoassets.

What is the UK ''financial promotions regime''?

In the UK, it is unlawful for a person, in the course of business, to communicate such an invitation or inducement unless they are:

• an authorised person (i.e., a firm authorised by the FCA); or
• the content of the financial promotion has been approved by a person who is itself approved by the FCA to approve financial promotions; or 
• an exclusion in the FSMA (Financial Promotion) Order 2005 (FPO) applies.

Further guidance on the FCA's interpretation of the financial promotion regime is set out in Chapter 8 of the FCA's Perimeter Guidance Manual (PERG). The FCA has also published product-specific guidance on financial promotions in its Business Standards, e.g., COBS for investment and long-term insurance products and MCOB for insurance products.  

The financial promotion restriction has broad territorial application. It applies to communications by UK-based firms as well as communications originating outside the UK, if they are ''capable of having an effect in the UK''.

A trend towards criminal prosecutions?

Pursuing criminal prosecutions is a serious matter and a tool in the armoury of the FCA which is used less frequently than its regulatory and civil powers. These charges demonstrate the seriousness of the FCA's intent to hold to account individuals who do not pay due regard to the restrictions that apply to promotions and communications about regulated financial products and services, particularly on social media.  

The FCA has been clear in its warnings to firms and finfluencers about the need to keep their social media posts lawful. Over the past couple of years, the FCA has been investing in tools such as web-scraping and AI, that help it to identify, remove and take action against misleading and non-compliant financial promotions, particularly those appearing on social media. 

The FCA currently prioritises taking enforcement action in cases it considers are most likely to act as an effective deterrent. Misleading and harmful advertising and messaging on social media has been identified as a source of potential harm both by the FCA and more broadly. It therefore seems likely that this will continue to be an area of regulatory scrutiny and a target for assertive enforcement action. 

Complying with FCA rules and guidance on marketing via social media 

Although these charges have been brought against individuals, this enforcement action should serve as a cautionary reminder for firms to ensure they operate in line with the UK financial promotion regime, having regard to FCA rules and guidance. The recently finalised Social Media Guidance does not create new obligations for firms but clarifies the FCA’s expectations. 

Firms working with affiliate marketers, such as influencers, need to take proactive responsibility for their communication of financial promotions. The Social Media Guidance suggests that this should include having appropriate monitoring and oversight systems to ensure that affiliate marketers understand their responsibilities and do not communicate unlawful or otherwise non-compliant financial promotions. Firms remain responsible for the compliance of every promotion they make or ''cause to be made'', irrespective of whether certain practical responsibilities are delegated to the affiliate marketer. 

In addition, firms should be mindful that there are specific promotion restrictions around high-risk investments such as CFDs and certain qualifying cryptoassets. Firms using social media to promote crypto or investment products should ensure they are familiar with all relevant marketing restrictions for the products they are promoting. 

One to watch

Three of the individuals being prosecuted have already entered not guilty pleas; it is unclear whether the other six individuals will do the same. The position should become clearer by mid-July. In the meantime, we expect the FCA to continue to use its powers to intervene and take enforcement action for breaches of the financial promotion regime against both firms and individuals.