This article was originally published on Credit Today on September 11, 2014. 

The advent of social media has seen many financial institutions, including banks, credit card companies and payday lenders, look towards websites such as Twitter and Facebook to raise their profiles.

The advent of social media has seen many financial institutions, including banks, credit card companies and payday lenders, look towards websites such as Twitter and Facebook to raise their profiles.

While social media may be an effective way for regulated firms to tap into new business and form direct links with their customers, complying with the regulations when promoting financial products via such character-limited platforms is not always so easy.

Whether tweeting about a new financial product or running adverts via traditional outlets, the rules stating that financial promotions must be clear, fair and not misleading for consumers must still be complied with, whatever media is used.

To this end, the Financial Conduct Authority (FCA) opened a guidance consultation in August to clarify its approach on the supervision of financial promotions in social media. The FCA points out in the consultation that firms’ use of digital channels to communicate with their customers is not a new development – the topic has been on the radar for the legacy Financial Services Authority since at least 2010 when it published initial guidance on the use of social media.

“However, digital media are now becoming the media of choice in many cases for customer communications and specifically for financial promotions,” says the FCA... “[m]ore particularly, firms are using, or wanting to use, social forms of digital media (social media) for their communications with customers.”

Confusion

The FCA is concerned that some firms are confused about whether and/or how the rules apply to social media, in particular character-limited media, and about the consequent risks to consumers.

As the FCA points out, every communication (tweet, Facebook insertion or page, or webpage) needs to be stand-alone compliant. This means that firms must be clear regarding the inclusion of regulatory information such as risk warnings (in compliance with the financial promotion rules) when communicating through sites such as Twitter, Pinterest and Vine.

The FCA stresses that it does not wish to block social media use, but firms must still find ways to comply with the FCA’s rules; those on financial promotions in particular. For example, use of the hashtag #ad is an acceptable way of complying with the rule that financial promotions for investment products are identifiable.

The FCA observes that these rules are media-neutral and therefore apply to social media as they would to any other medium, pointing out that companies can advertise their presence in the market through “image advertising”, which is unlikely to present difficulties with character limits.

“When taken into account with the supervisory approach to standalone compliance, this poses particular challenges for the use of character-limited social media,” the FCA states. “One solution to the problem of character limitation is to insert images, such as infographics into tweets, which allows relatively unrestricted information to be conveyed. However, where the financial promotion triggers a risk warning or other information required by our rules this cannot appear solely in the image.”

Enforcement

It is clear that the FCA is taking this subject very seriously. Since 1 April the FCA has reviewed more than 1,500 financial promotions for consumer credit products. During this time, the FCA opened 227 cases about non-compliant promotions for products such as payday loans, debt management services and credit brokers. Around 25% of these cases relate to advertisements for high-cost short-term credit, specifically that many lenders are not prominently displaying a risk warning or representative APR. The vast majority – some 80%– featured cases of non-compliance in digital media.

The FCA details instances of non-compliance, including commercial debt management advisers that were not clear in terms of informing the public the service was not free, adverts claiming that individuals could receive credit irrespective of their financial circumstance, promotions that misled about the APR and certain internet search terms and links that took consumers to unrelated credit sponsored outfits.

Twitter and other social media outlets may be an exciting opportunity for many creditors but they are not without their potential risks. The FCA may well choose to tighten the rules in due course but, in the meantime, firms must know that the rules are there and they are not to be broken.

The FCA’s consultation closes on 6 November.