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Last year, the number of financial promotions from authorised firms amended or withdrawn by the FCA increased by 1398%. The FCA’s latest financial promotions data shows a significant increase in activity from the regulator in response to financial promotions involving both authorised and unauthorised firms. In relation to unauthorised firms and individuals, the FCA issued 1,882 alerts in 2022, an increase of 34%. In their report on financial promotions, the regulator said it remains “concerned regarding the levels of compliance” but these findings might only be the tip of the iceberg of a deepening consumer protection problem.
Why have compliance issues increased?
The increase in activity is a result of a combination of the FCA expanding its resources and capabilities in this area and an explosion in the volume of cases due to social media.
The regulator has increased its search capability across all social media channels to identify illegal financial promotions faster and in larger volumes. As outlined in recent business plans, the FCA is becoming more data-led and has been actively trawling websites and social media. The regulator also now has a dedicated financial promotions unit, which was set up specifically in the context of the Consumer Duty and clearer standards of consumer protection.
Whereas in the past firms might have produced a handful of financial promotions per year, the use of social media has resulted in daily or sometimes multiple posts per day, from multiple accounts, making the sheer volume exponentially larger and the likelihood of mistakes greater. In addition, traditional media knew the rules of engagement well, but the large tech platforms such as Google and Meta are only just now getting a hang of it. In this year’s analysis report the FCA said it had spoken to “all major social media companies, including Instagram, Facebook, YouTube and TikTok.”
‘Fin-fluencers’
When it comes to unauthorised firms and individuals, the picture is even more complex and unwieldy. There has been a huge rise in online advertising of ‘get rich quick schemes’, Day Trading platforms and crypto investments. There has also been a rise in ‘fin-fluencers’ – social media influencers who use their platforms to promote financial products. The FCA said they saw an ongoing trend in the number of bloggers promoting credit on behalf of unauthorised third parties, with a particular growth in financial promotions targeting students.
Many of these social media influencers are simply unaware of the rules and regulations, and the FCA is working with other regulators to educate fin-fluencers about their obligations when seeking to promote financial products or services. In the most serious of cases, the FCA have said they “have and will refer fin-influencers for criminal investigation.”
A perfect storm
This is all against the backdrop of a cost-of-living crisis, in which a fast and easy way to make money looks even more appealing, and certain consumers are particularly vulnerable. The FCA took action in 2022 against a company seeking to take advantage of the rising cost of living to target potentially vulnerable consumers. The entity was providing trading signals to over 70,000 followers.
In addition, with people generally spending more time working from home on their own computers and a rise in online gambling and gaming hungover from the pandemic, consumers are more likely to be exposed to these types of financial promotion.
Interestingly, this has meant the demographic most vulnerable to this risk are not those typically thought of as financially vulnerable. The FCA has become more acutely aware of its responsibilities around vulnerable customers in recent years and the fluctuating nature of this category – it published its first guidance on vulnerable customers in 2021 and has since issued several additions and updates.
What’s next for financial promotions regulation?
The FCA has clearly identified financial promotions as an area in need of focus and ramped up its regulatory activity and action, which is encouraging to see. Last summer, it strengthened its financial promotion rules for high-risk investments, and started regulating pre-paid funeral plans.
Despite this, there is a sense that more needs to be done. The increased monitoring by the regulator has exposed the number of authorised firms getting it wrong, and if those who are legally required to follow FCA rules are slipping up, what’s been unearthed in terms of unauthorised firms and individuals is surely only the tip of the iceberg.
The FCA is consulting on plans to introduce a gateway requiring firms approving financial promotions on behalf of unauthorised persons to apply for permission to do so. It has lobbied the government to include consumer protection from pre-paid fraudulent adverts in the Online Safety Bill, and there are reforms around the financial promotions of cryptocurrencies in the upcoming Financial Services and Markets Bill, but this may not be enough. There is an argument to be made that the regulator should be lobbying the government for even greater powers, to gain better control over the wild west of unauthorised financial promotions and better protect consumers.
What should you do?
To avoid the pitfalls of financial promotions, you should start by reviewing your own in-house approvals process for your internal promotion rules and requirements. It’s important to train staff in the FCA requirements, particularly those with access to your social media accounts. You can also do a sample review of current promotions to ensure you are sticking to the rules.
How we can help
Our team of regulatory experts can help you understand how financial promotion rules may apply to your firm. We can also help with ongoing compliance support including advice and training on financial promotions. We can conduct a dedicated review of all live promotions and flag any potential issues before the regulator comes knocking.
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