In case you missed it, the FCA has now published its finalised guidance (FG24/1) clarifying expectations of firms and others, such as affiliates and influencers, communicating financial promotions on social media.
The FCA originally consulted on this back in July 2023, citing that social media has become an increasingly vital part of firms’ marketing strategies, allowing them to reach a mass audience at increasing speed and frequency. The FCA has expressed concern over poor quality financial promotions leading to significant consumer harm due to their wide reach and the complex nature of financial services. After reviewing the consultation feedback and making targeted amendments to the previous guidance (FG15/4), the FCA is replacing FG15/4 with the new finalised guidance, FG24/1.
The Guidance applies to:
Authorised persons involved in communicating or approving financial promotions on social media.
Unauthorised persons, including influencers or other affiliate marketers, involved in communicating financial promotions on social media.
Trade bodies that represent the above groups.
The Guidance
For clarification regarding ‘what is a financial promotion’ please watch our short explainer YouTube video - What is a Financial Promotion? which runs through all you need to know.
The guidance stipulates that any form of communication (including through social media) is capable of being a financial promotion if it includes an 'invitation or inducement to engage in investment activity'. This can include communications through ‘private’ or invitation only social media channels, like chatrooms such as Discord and Telegram.
Whilst the Guidance does not create new obligations for those who promote financial products and services on social media, it does help to clarify how firms might approach complying with existing regulatory obligations.
The financial promotion restriction has a broad territorial application. It applies even where a communication originates outside the UK, if it is capable of having an effect in the UK. A breach of s21 FSMA is a criminal offence which is punishable by up to 2 years imprisonment, the imposition of an unlimited fine, or both.
With the above in mind, we have prepared a breakdown of the key questions a firm should consider before preparing a promotion for social media.
Here goes:
1) Does the communication provide a balanced view of the product or service being promoted? The promotion must support consumer understanding by providing a balanced view of the benefits and risks and also use clear language that consumers are likely to understand. The appropriate level of detail for a promotion that supports consumer understanding will depend on factors such as the target audience, what information recipients need to know, the kind of decision recipients will have to make, and any potential sources of confusion.
2) Does the communication convey the complexity of the product? Promotions of complex financial products might require additional supporting information or disclosure to support consumer understanding. In this case, firms may include supporting hyperlinks or separate pathways for a consumer to access supporting information. Links to supporting information should be clearly brought to the consumer’s attention and should give consumers enough information to make an informed decision. However, the initial promotion needs to remain compliant in and of itself.
3) Have you ensured that ‘risk warnings’ have sufficient prominence? Prominence of relevant information plays a key role in ensuring that a communication is clear, fair and not misleading. Important information, statements or warnings should be shown using clear and bold type styles across neutral backgrounds. The size of the important information, statement or warning should be proportionate, taking into account the content, size and orientation of the promotional material as a whole. Both the benefits and drawbacks of a product are balanced through equally prominent feature statements. Risk warnings are contained within their own distinct border, thus drawing the reader’s attention to them. Risk warnings are clearly stated within the main body of the advertisement and ahead of the ‘small print’ (i.e. the additional product / legal text and firm contact information).
4) Are you adhering to the rules which obtain to your specific sector, services and products? Firms communicating or approving financial promotions should be aware of the rules in the sourcebooks that are relevant to their business:
The Consumer Duty PRIN 2A & PRIN 3
Conduct of Business sourcebook COBS 4 & COBS 22
Banking: Conduct of Business sourcebook BCOBS 2
Claims Management: Conduct of Business sourcebook CMCOB 2 & CMCOB 3
Consumer Credit sourcebook CONC 3
Funeral Plan: Conduct of Business sourcebook FPCOB 4
Insurance: Conduct of Business sourcebook ICOBS 2
Mortgages and Home Finance: Conduct of Business sourcebook MCOB 3A
Environmental, Social and Governance sourcebook ESG 4
General Provisions sourcebook GEN 4 & GEN 5
5) Are you applying the relevant marketing restrictions for the products you are promoting?
Table 1 on page 20 of the guidance details how prescribed risk warnings should be applied to certain types of social media channels.
6) Are you adhering to the Consumer Duty rules? The Duty came into force on 31 July 2023 for products and services that are on sale to new customers or available for renewal to existing customers, and will apply to closed products from 31 July 2024.
Firms advertising using social media must consider how their marketing strategies align with acting to deliver good outcomes for retail customers. The Duty also requires firms to do things such as identify a target market and tailor their communications to account for the characteristics of their target market and the characteristics of the marketing channel used. FG22/5 ‘Final non-Handbook Guidance for firms on the Consumer Duty’ , outlines good and poor practice that firms can refer to.
7) Are you able to manage recipients sharing or forwarding communications? The FCA is very clear that sharing or forwarding by a third party does not eliminate any original non‑compliance. Once a financial promotion has been shared or forwarded it is difficult to control the promotion being distributed beyond the target audience. With this is mind firms should consider whether social media is an appropriate channel to promote products or services that have a restricted target market. Firms may like to review the FCA’s existing guidance on communicating (PERG 8.6.) and its relevance to financial promotions to ensure they are compliant.
8) Do you have appropriate systems and controls in place regarding Affiliate Marketing? Firms are required to take proactive responsibility for how affiliate marketers communicate their financial promotions. Firms are liable for the compliance of any financial promotion made by their affiliate marketer - even if they have not been involved in the development or creation of the content. It is the firms responsibility to ensure they have proper systems and controls in place to manage how their promotions are used on social media. ASA’s guidance on online affiliate marketing is an important document that affiliate markets should be aware of. We also recommend you make yourself aware of Table 2 on page 27 of the guidance, which gives examples of good and poor practices for the monitoring and oversight of affiliate marketers, such as influencers.
9) Is your record‑keeping compliant?
The FCA has made it clear that firms must have an adequate system in place to sign off digital media communications, in line with the requirements of Senior Management Arrangements, Systems and Controls sourcebook (SYSC), SYSC 3 and SYSC 4. This sign‑off should be by a person of appropriate competence and seniority within the organisation. Firms should also be aware of any sector specific requirements, for example those in COBS 4.10.
Last but not least:
10) Could you benefit from our expert knowledge and support?
FinTech Compliance can support you in reviewing, updating and enhancing the processes you have in place, review examples of your financial promotions, provide training to your staff or affiliates, or provide any other general support or advice on financial promotions. Why not get in touch for a chat today to see how we can help.