UK FCA warns firms they are responsible for ‘finfluencers’ misdeeds on social media

The UK’s Financial Conduct Authority (FCA) has warned firms and influencers involved in financial promotions they should always adhere to lawful advertising practices on social media.

The FCA’s guidance, specifically targeting the use of memes, reels, and gaming streams that promote financial services, underlined that all advertisements across social media platforms must be fair, clear, and not misleading, ensuring they provide a balanced view and include appropriate risk warnings, enabling consumers to make informed financial decisions.

FCA stresses potential criminal offense of unauthorized ads

The increasing reliance of firms on social media for marketing their financial products and services exposes them to potential compliance risks as they remain responsible for all promotional content, including that which is disseminated by influencers.

Influencers, in turn, were reminded of the legal ramifications of promoting financial products without the necessary approvals from an FCA-authorized entity, with the FCA stressing the potential criminal offense of unauthorized financial promotions.

The authority also advised caution regarding the suitability of social media as a platform for promoting complex financial products, given the inherent limitations of these platforms in terms of content depth and space. The FCA reported a significant increase in the removal of misleading adverts, with over 10,000 such adverts taken down last year, a rise from around 8,500 in 2022.

The initiative is part of broader efforts to enforce stricter advertising rules for high-risk investments, including cryptocurrencies, and is aligned with the FCA’s ongoing InvestSmart campaign, which aims to encourage smarter investment decisions among the public.

“Promotions aren’t just about the likes, they’re about the law”

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.”

The statement follows the FCA’s consultation on updated guidelines for financial promotions on social media in 2023, leading to changes in advertising policies by several Big Tech companies, which now only allow ads approved by FCA-authorized firms.

The FCA continues its collaboration with the Advertising Standards Authority to educate consumers and influencers about the risks associated with financial product promotions. This educational effort includes the creation of infographics and events aimed at raising awareness and guiding influencers in making informed decisions about promoting financial products or services.

US: $850,000 fine in FINRA’s first action related to ‘finfluencers’

In the United States, FINRA recently imposed a fine of $850,000 on M1 Finance LLC for violations concerning its use of a social media influencer program. Marking FINRA’s first disciplinary action specifically related to a firm’s oversight of social media influencers, the fine was levied due to influencers making posts on behalf of M1 Finance that were found to be unfair, unbalanced, or contained claims that were exaggerated, unwarranted, promissory, or misleading.

The investigation revealed that from January 2020 to April 2023, M1 Finance compensated social media influencers to produce content endorsing the firm and encouraged the use of a specific hyperlink directing potential customers to its website for account opening and funding. Over 39,400 new accounts were attributed to the efforts of approximately 1,700 influencers. However, the firm failed to ensure that these promotional activities were fair, balanced, and compliant with FINRA rules, notably Rules 2210 (Communications with the Public) and 2010 (Standards of Commercial Honor and Principles of Trade).

One highlighted infraction involved misleading representations about M1 Finance’s margin lending program, suggesting more lenient terms than were actually available. This, among other violations, pointed to a lack of adequate review and approval of influencer content, as well as a failure to maintain a suitable supervisory system for overseeing such communications, violating additional FINRA rules and regulations.

In response to the enforcement action, M1 Finance has agreed to the findings and consented to implement a supervisory system and written procedures designed to ensure compliance with FINRA Rule 2210, without admitting or denying the charges. This case serves as a reminder of the regulatory expectations for firms using social media and influencer marketing strategies in the financial services industry.