The FCA’s crackdown on misleading promotions

Published on February 20, 2023 by Anitha Revanna

The high cost of living is one of the main economic issues being faced by almost all major countries in Europe. The UK is no exception. With households struggling to manage their finances, they are susceptible to financial or investment scams on social media promoting unregulated, high-risk products.

There were 4.55bn active social media users globally¹ as of December 2022. It has become very challenging for promoters in all sectors – such as education, food and financial services – to attract users with advertisements. The financial sector is also using social media platforms to reach investors.

To address these concerns efficiently, the Financial Conduct Authority (FCA), the UK’s financial regulator, has upgraded the digital tools it uses to find misleading advertisements and scammers. A press release on 3 February 2023 indicated that the FCA requested firms to amend or remove 8,582 promotions in 2022. This is 14 times more than in 2021; it also published more than 1,800 alerts to avoid scams.

In this blog, we try to understand what the FCA expects from financial firms in terms of online advertisements.

Most importantly, it expects all financial promotions to be fair, clear, balanced and not misleading. With this new rule, the FCA takes an updated approach to finding and reviewing poor-quality advertisements in a timely manner. This helps it steer a firm’s digital promotional strategy on the right path or to remove the strategy as required. The aim is to safeguard the public’s  hard-earned money. The restated/amended requirements include the following:

• The FCA is the only body that can authorise financial promotions in UK and all other unauthorised promotions should be ignored. This increases pressure on tech companies, in an effort to protect consumers.

• It requires financial influencers (“fin-fluencers”) to be careful when promoting their products and to be aware of their obligations.

• Most promoters use social media; this invites unauthorised advertisements. The regulator has instructed social media platforms on how to identify and remove such unauthorised advertisements.

• Employees have found to be using personal social media networks to promote illegal financial products and trade. The FCA will be taking stringent measures to handle this.

• Young investors should think carefully before investing in high-risk products in an effort to counter the high cost of living; promoters are targeting the 20-30 age group.

• The regulator is also focusing on the use of cryptocurrency to avoid unregistered transactions of digital asset products and promotions.

 

Risk warnings and other statements required for promoting financial products on social media

 

The following guidelines need to followed, according to GC14/6 Social media and customer communications:

• Include all the possible risk warnings or other statements while promoting products/services

• At least a short statement should be included if there are space constraints, covering all the possible risks

• To overcome character limitations, include images/infographics that convey the details; this still needs to be “fair, clear and not misleading”

• Link the promotion to a website so it directs readers to detailed information/footnotes

• Never include promissory language, exaggerations and/or unsubstantiated claims

• Risk warnings should be clearly readable/understandable to readers.

• Posts re-shared will also be the responsibility of the firm

• The Guidance consultation – social media and customer communications” outlines the need for firms to have an adequate framework in place for a senior compliance officer to review and approve digital media communications

• Timely record keeping of all communications

• Firms must also adhere to the rules of the Advertising Practice Code Committee (a British organisation responsible for compiling the UK Code of Non-Broadcast Advertising, Sales Promotion and Direct Marketing)

The FCA will be establishing the Consumer Duty rule in July 2023. In line with this, financial firms must provide clients with all the data required for making an investment decisions. For more details: FG22/5: Final non-Handbook Guidance for firms on the Consumer Duty (fca.org.uk).

In March 2015, the FCA launched the ScamSmart campaign to raise awareness of investment scams. Investors were encouraged to search for firms not authorised by or registered with the. The regulator advises investors to be aware of clone-firm fraud and recheck the Financial Services (FS) Register before making investment decisions.

How Acuity Knowledge Partners can help

Our corporate compliance services cover a wide range of managed services including e-communication reviews, marketing material and advertisement review, regulatory compliance review, distribution compliance, code of ethics monitoring and social media surveillance. Our regulatory compliance professionals work as an extension of your firm’s team of in-house compliance officers to provide support and assist you in terms of seamless workflow. Combined with our expertise in compliance, our subject-matter experts strive to maintain internal controls and help redesign workflow to mitigate inherent and potential risks identified under any policy or regulation.

1Source - Search Engine Journal

References:

• Financial watchdog blocks thousands of misleading ads | FCA

• Financial promotions data 2022 | FCA

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