The Financial Conduct Authority (FCA) has launched a consultation to clarify its approach to supervision of financial promotions in social media (GC 14/6).
As part of its consumer protection objective, the FCA is responsible for policing whether businesses and individuals have contravened requirements in relation to financial promotions. As part of its role, the FCA provides information on its website about its approach and its general requirements in relation to financial promotions. The FCA has the power to ban financial promotions and it can even be a criminal offence in the UK to make a financial promotion.
Financial promotions come in many guises but they all share the core characteristics of being a communication that amounts to an invitation or an inducement to engage in investment activity.
- A trap for firms is that the concept of "investment activity" is very broad and not always straightforward - so a firm may promote a product or a service entirely unaware that it would be seen as an investment activity in the eyes of the regulator.
- Another area to watch out for is the persuasive element of the communication. A financial promotion is more than marketing aimed at image or brand awareness or non-promotional communications, but regulators will generally take a conservative view and may see a persuasive or inducement element in quite subtle communications.
- Tricky issues crop up in one off communications but the regulator will also look at the combined effect of a series of linked communications. One post on its own may not be a financial promotion but two associated posts may well be; even simply retweeting a positive customer experience may be an inadvertent goof.
The FCA's standard approach applies to financial promotions made in any media, including social media. Therefore, the FCA intends its guidance to supplement the current regime; it provides positive direction to firms about good standards for their social media activity rather than a set of prescriptive obligations. This should ensure the regime can match the dynamic and flexible pace of innovation and development in the technology sector. It does mean that firms need to put some thought into how they achieve compliance in this context.
It is significant that the FCA has not closed the door on social media. Users should not feel discouraged: in a recent announcement the FCA made it clear that financial promotions in any media often still fall short of its requirements and all firms need to do more to ensure that adverts are not misleading. Since 1 April 2014, the FCA has opened 227 cases about non-compliant promotions for products in the consumer credit sector; approximately 80% of these relate to digital media (including websites, emails and text messages).
For firms with an entirely online presence, it is vitally important to approach marketing activity in line with the FCA's expectations. The informality, brevity and agility of social media are its major attractions – but these features make it easy for businesses and individuals to slip up unintentionally. Social media messages can focus on misleading headlines, in turn creating unrealistic investor expectations - and they cannot usually provide sufficient product information or set out risks to enable investors to make a reasoned investment decision. There is also a higher probability that the advertisement will be seen by a wide range of people, including those for which the investment is not suitable or appropriate. Firms need to address these sorts of issues as part of their product governance process.
And, of course, firms do not need to stop all social media communication – although a review of activity against the rules might be sensible.
All firms, especially with marketing and FinTech expertise, should engage with the FCA's initiatives for FinTech to ensure strategy, policy and rules evolve in a helpful way. The FCA's consultation (GC 14/6) closes on 6 November 2014 and the FCA's approach should be finalised in early 2015. The FCA has also designed Project Innovate to encourage firms to bring innovation to the financial services market and to assist the FCA in learning from the industry.