Phil is away this week enjoying his holiday, so in her second guest blog for us, Vicky Pearce, director of financial compliance specialists, b-compliant, looks at the FCA’s new rules on social media.
Over to Vicky…
Eight years is an age in the fast-paced business of social media.
We are not just talking about the changing names of Facebook and the platform formally known as Twitter. Eight years ago, there were 2.31 billion social media users – a huge number by anyone’s standards – but by April this year, it had risen to 4.8 billion. This means nearly 60% of the world’s population uses social media, which is an awful lot of cat videos!
While the internet loves a good moggy, it also represents a massive marketing opportunity for most firms and, increasingly, those in the financial sector.
However, it has also been eight years since the FCA last issued guidance on using social media to promote financial products or services. When we consider the pace of acceleration in this medium, it doesn’t take a digital marketing genius to realise these are now somewhat out of date.
The FCA has found that social media is now driving the investment behaviour of the under-40s and often these younger, less experienced investors are being tempted by higher-risk products. Following the implementation of Consumer Duty, the regulator now wants to address the risk of harm and ensure the marketing found in these spaces can be relied upon.
What is changing?
The FCA’s original basic principles still apply, as do the underlying rules that underpin communications with clients and any sector-specific rules. This means financial promotions on social media still need to be standalone compliant, have prominent risk warnings and be of good quality.
So, what constitutes a “financial promotion”? The FCA’s definition is quite complex, but it boils down to any marketing communication, invitation or inducement to engage in investment activity. This includes messaging that encourages someone to buy, sell, subscribe to, or underwrite a specific investment product or service.
Consumer Duty has strengthened the requirement for a promotion to be clear, fair and not misleading, but you must now also consider how communications should be tailored, for example, to account for the likely audience and different platforms’ features.
If you use social media to communicate with retail customers, the FCA expects you to be able to evidence that clients receive the right information at the right time, in a way they can understand. As part of your record-keeping, make sure you demonstrate how your general marketing strategy and specific promotions deliver good outcomes and enhance consumer understanding.
The FCA still expects you to promote financial products and services in a balanced way, not only highlighting the potential benefits, but also the relevant risks. This means considering the appropriateness of character-limited media as a means of communicating complex features. It might be more appropriate to signpost a product or service with a link to more comprehensive information or simply reserve this medium for more general promotion.
In some cases, social media will not be appropriate for advertising a particular product or service and you should bear this in mind. Consider the likely audience and complexity of the subject matter whenever these decisions are made.
Affiliate marketing and influencers
If you pay commission to someone based on business generated from referrals, this is classed as affiliate marketing. It has become a common social media strategy. However, even if you have no control over the content created by this affiliate marketer, if they use referral links within their social media, you are still liable for the compliance of this financial promotion.
Likewise, the FCA has seen a substantial increase in the use of influencers, particularly to promote investment and credit products, many of which target younger consumers who are more likely to trust the information provided. Select influencers with care and be mindful of their audience demographics – do they demonstrate characteristics of vulnerability?
If you want to align yourself with an influencer or affiliate marketer, ensure you can approve the promotion to check it is compliant. If the product is complex, consider if the individual understands what they are endorsing and how to promote it on social media.
The requirement to use risk warnings or other statements in promotions are media neutral, so they apply to social platforms as they would to any other channel.
The FCA expects these warnings to be clear, prominent and without a design feature that reduces their visibility. Behavioural research has shown they are more effective when viewed at the time or just before the promotion.
Don’t forget there are additional sector-specific requirements to have more prescriptive risk warnings on, for example, higher risk investments. Be sure to familiarise yourself with the rules before communicating or approving these types of social media promotions.
The current FCA guidelines on social media marketing remain in force until the new iteration is finalised later this year. However, the Consumer Duty regulations mean you should already be considering many of the issues raised in these proposals to achieve good consumer outcomes.
The regulator has seen examples of firms lacking the proper systems and controls to manage social media promotions and is recommending the following:
- Make sure posts are only approved by someone of appropriate competence and seniority.
- Ensure any unauthorised person, either within the firm or externally, who is promoting a financial product or service understands what they are advertising and is aware of the relevant rules.
- Keep adequate records of any relevant communications so you can deal effectively with claims or complaints. Do not rely on digital media channels to maintain records –content is refreshed from time to time and older material may be deleted.
Finally, don’t forget that, if your content is shared, you are still responsible for any breaches of the FCA rules in the original communication and there is a risk that it can create non-compliance. For example, if a post intended for a professional investor is viewed by a retail customer.
It is difficult to prevent social media marketing from being distributed beyond its original audience and, for that reason, you should really consider if it is the right way to promote products and services with a restricted market.
This useful factsheet contains information about the FCA’s full social media guidance consultation. For more information about how it will affect your firm email firstname.lastname@example.org or contact us on (0161) 521 8641.