UK watchdog proposes tougher rules on ‘finfluencers’

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The UK’s financial regulator has proposed new guidance governing how financial products can be marketed on social media platforms to limit what it described as “significant consumer harm” from unsuitable and illegal promotions.

In a consultation that began on Monday, the Financial Conduct Authority said its new consumer duty — which requires banks, insurers and other financial companies to provide good outcomes for customers — will be applied to social media posts.

“We’ve seen a growing number of ads falling short of the guidance we have in place to stop consumer harm,” said Lucy Castledine, director of consumer investments at the FCA. “For those touting products illegally, we will be taking action against you.”

The watchdog expressed concerns about “finfluencers” promoting risky products to their mass followings, as well as companies using social media celebrities to promote services they may not even understand.

“Consumers exhibit high levels of trust in ‘finfluencers’, but their advice can often be misleading,” said the FCA. “Often these influencers have little knowledge of what they’re promoting. This lack of expertise is reflected in the large number of promotions that are either illegal or non-compliant.”

The FCA cited research from consultancy MRM which found that almost three quarters of young people say they trust information provided by social media influencers. A 2021 survey by the watchdog found that almost 60 per cent of under-40s who had invested in high-risk products said they based their decisions on social media posts and the news.

The regulator said that under its proposals, companies would be expected to monitor how their affiliate links are used by influencers to ensure they are communicating responsibly with customers.

The FCA added that memes and similar content, which are commonly used to promote high-risk cryptocurrency investments, would also be subject to the proposed new rules.

Digital assets have faced growing scrutiny in the UK, with crypto fraud losses reaching £306mn in the 12 months to March 2023, more than 40 per cent higher than the previous year.

The FCA currently regulates only for money-laundering compliance but separate rules governing the marketing of digital currencies, including banning bonuses for referring friends, will come into effect on October 8.

The FCA said its proposed social media rules would also apply to non-UK companies if their financial promotions were available to UK consumers, which could have an impact on large crypto exchanges based in other jurisdictions.

According to the regulator advertisements for buy now, pay later services — a popular form of short-term interest-free credit — as well as debt counselling, peer-to-peer lending and personal loans could all fall under the proposed new regulations.

The FCA’s announcement comes as the Online Safety Bill moves through the House of Lords. The long awaited legislation will impose a “duty of care” on large online platforms to protect users from fraud, including investment scams and other negative content.

The regulator’s wider consumer duty regime, which comes into force at the end of this month, has been met with concern by financial services bosses, who have privately warned it could trigger a wave of spurious lawsuits and create a large administrative burden. City minister Andrew Griffith has also privately criticised the reform, according to people familiar with the matter.

The FCA consultation on social media marketing ends on September 11 and the new guidance will be finalised later in 2023.