Is your social media marketing in line with (updated) FCA expectations?
In July 2023, the FCA published a guidance consultation (GC23/2) relating to financial promotions on social media. The new draft guidance will replace the existing guidance from 2015 and is a welcome and much-needed refresh given the developments in online marketing and social media that have occurred since then.
Many of the existing principles and requirements remain broadly unchanged, for example the fact financial promotion rules are media-neutral, the requirement for stand-alone compliance and the need for balance and prominence of risk warnings. However, there are significant changes and additions to the guidance to reflect developments in the landscape of social media (e.g. the rise of influencers) as well as changes to the FCA rules (such as the introduction of Consumer Duty).
Financial promotions and Influencers
In February 2023, the FCA expressed concerns in relation to fin-fluencers (social media influencers who publish content on financial matters) issuing poor quality financial promotions which were often issued unlawfully. These concerns are addressed again and in more detail in the new draft guidance, with the FCA dedicating an entire chapter (3) to the topic of influencers. Some of the key points in this chapter include:
Before approving a financial promotion to be communicated by an influencer, firms should review the nature of influencer’s audience and determine whether this is appropriate. For example, it would be inappropriate for a firm to promote its investment products using an influencer whose posts are targeted to those looking to get out of debt.
Firms approving promotions of high-risk investments which are communicated by influencers are subject to strengthened requirements (in COBS 4.10) around ensuring promotions remain compliant for their lifetime and obtaining attestations of “no material change” every 3 months.
Firms are required to ensure that the influencer understands the products/services they are promoting and how to remain compliant with FCA rules. This will require firms to think about what additional steps they should take before partnering with an influencer and what evidence they can keep to demonstrate compliance with this obligation.
The FCA reminds firms that there does not need to be direct compensation for a influencer’s post for the promotion to be subject to the financial promotion regime. FCA include a list of scenarios to explain this further, which includes, for example, where an influencer promotes in order to generate revenue from the firm in the future or in an attempt to acquire more followers and likes.
Social media and Consumer Duty
The Consumer Duty, effective from July 2023, raises the expectations of how firms communicate with retail customers. The Consumer Duty requires firms to build upon the core requirement for communications to be fair, clear and not misleading. Principle 12 and PRIN 2A, including the cross-cutting rules, apply to a firm communicating or approving financial promotions which are likely to be received by retail customers. Firms must consider how their communications deliver good outcomes for retail customers and promote consumer understanding.
The FCA draw out the cross-cutting rules in particular as being relevant for social media, stating: “All the cross-cutting rules will be relevant to social media promotions, and firms should take into account how promotions that do not support consumer understanding may cause consumers to buy products that are unsuitable for them, leading to foreseeable harm.”
The guidance goes on to describe another example of activity inconsistent with the cross-cutting rules, which is where consumers on social media are repeatedly bombarded by financial promotions from the same firm or about the same service. FCA say this type of ‘excessive targeting’ can be particularly damaging to vulnerable consumers and is not acting in good faith.
The requirement to test and monitor to support good customer outcomes is embedded throughout the Consumer Duty rules, but is particularly relevant for the consumer understanding outcome. FCA say the requirement to regularly test, monitor and adapt communications to support good outcomes is especially relevant for social media as it evolves and new features emerge which could impact consumer understanding.
And whilst, naturally, much of the guidance is directed at ensuring firms use social media appropriately, FCA make the point that for some products or service, social media will not be a suitable marketing channel at all. Factors to consider are complexity of the product or service and the likely audience. In some cases, social media may need to be restricted as a tool for sign-posting customers towards other channels where more comprehensive information can be provided. The FCA use debt counselling as a specific example.
Next steps?
FCA welcome views on the updated guidance until 11 September 2023 and intend to publish final guidance later in 2023. However, we don’t expect material changes so would advise firms using social media marketing strategies to get familiar with the updated guidance before then. Especially as Consumer Duty is already in force…
If you have any questions on the updated guidance, or your financial promotions compliance more broadly, please get in touch.