This has resulted in a proliferation of online financial promotions much of which has been identified by the FCA as likely to be non-compliant with their requirements. As a result, the FCA has launched a new consultation for guidance (GC23/2) to provide an updated framework to the existing guidance published in 2015 which can address the challenges created by these developments.
The FCA's basic requirement for financial promotions are for them to be fair, clear and not misleading. The rules governing financial promotions that are aimed to achieve this standard are designed to apply across all channels used to advertise and be technology neutral. Although the use of social media by the financial services sector is not new, it has been recognised that increasingly varied social media platforms have become popular as a means to publicise financial products and services in new ways, often without regard to the rules in place and in a manner which could cause harm to consumers.
The FCA has therefore set out its proposals in this consultation for guidance to ensure firms understand the FCA's expectations and to make clear where unauthorised persons promoting financial products on social media may be committing a breach of the financial promotions restriction in section 21 of the Financial Services and Markets Act 2000 and, therefore, an offence.
The Consumer Duty creates greater expectations on firms communicating or approving financial promotions to deliver good outcomes for retail customers. Firms should be careful to consider these alongside the guidance set out by the FCA in this consultation.
The FCA proposes to keep the key principles of Finalised Guidance 15/4, including its expectation that financial promotions should be 'standalone compliant'.
This means each financial promotion is required to comply with the FCA rules on its own. Nevertheless, it is recognised that promotions of complex financial products may require additional supporting documentation or disclosure to enable consumer understanding. In this case, firms may include supporting hyperlinks or separate pathways for customers to access this information. However, any such links should be clearly and prominently brought to the customer's attention and give them enough information to make an informed decision.
The FCA will assess promotions as a whole when provided through a dynamic medium such as Instagram Stories, taking a proportionate view based on where risks are included and the number of frames. Firms using such mediums should pay particular attention to the FCA's expectations with respect to prominence, ensuring the key information about risks are included at the consumer's first interaction with the promotion and displayed for a sufficiently sustained period.
Consumer Duty Impact
The FCA notes that the Consumer Duty will raise its expectations of firms communicating financial promotions on social media above the requirement of Principle 7 to be ‘clear, fair and not misleading’. The new standard requires firms to ensure their marketing strategies align with acting to deliver good outcomes for retail customers (regardless if a firm has a direct relationship with the customer or not). This includes consideration of how their communications support and enable informed decision-making, equipping customers with the right information in a timely manner.
With respect to social media, the new guidance emphasises that firms should consider the likely audience and features of the platforms used when designing communications and tailoring them appropriately. The FCA has noted that some consumers on social media are more susceptible to behavioural biases that can be exploited by repeated and excessive targeting of communications. Firms using social media in this way to promote their services are therefore not considered by the FCA to be 'acting in good faith' as required under the Consumer Duty.
Furthermore the Guidance Consultation outlines that, in some instances, social media will not be an appropriate channel for promoting services. Firms should therefore always consider factors such as the likely audience and complexity of the relevant product or service. However, it may be appropriate for promotions on social media to signpost potential customers towards other channels where information that is more comprehensive can be provided.
Financial Promotions Compliance
The Guidance Consultation also raises the difficulties with promoting certain products in a compliant manner on social media. The character-limited nature of some social media platforms makes them inherently unsuitable as a vehicle for the promotion of complex products. The requirement to be 'fair clear and not misleading' and the obligation for firms to enable customers to make good decisions under the Consumer Duty means customers should be informed not only of the potential benefits but also of the relevant risks associated with products. Achieving this using a character-limited format may be difficult.
Firms must consider financial promotions compliance on a product-by-product basis and some products may be inappropriate for promotion on social media entirely. Using the example of debt-counselling services and the CONC rules, the Guidance Consultation highlights that some products are unlikely to be promoted in a compliant manner on media with restricted space due to the amount of information required to adequately explain the complexity of the product.
The Guidance Consultation applies a similar analysis to buy-now-pay-later products. Firms promoting buy-now-pay-later services should include the relevant risks including that they are unregulated credit agreements, the consequences of missed payments and where charges become payable. However, the use of credit based examples should not be seen as limiting the general point; namely, that some social media may be inherently unsuitable for the promotion of complex products
That said, the Guidance Consultation does recognise it may be possible to signpost such a product or service and provide a link to more comprehensive information, provided that the promotion remains standalone compliant. Alternatively, it may be appropriate to use 'image advertising' to promote a firm in a general manner.
Risk Warnings and Required Information
The Guidance Consultation reminds firms that promotions for certain products are required to include risk warnings or other statements. These requirements are media-neutral so apply equally to promotions on social media. These are expected to be clear and sufficiently prominent without the use of any design feature that may reduce their visibility. Firms are advised to familiarise themselves with the design features of various social media platforms which they use for promotions to ensure risk warnings and important information are not obscured.
Additionally, the FCA highlights its previous OP/26 behavioural research, which showed that risk warnings are more effective when viewed at the time or just before the communication of the promotion, in addition to when they are prominent and stand out from their surroundings. For this reason, the FCA advises that consumer understanding is maximised when risk warnings are no less prominent than the headline and not provided at a later stage.
As above, firms are also advised to consider the specific design features or relevant social media platforms when including risk warnings and required information. Many social media platforms make use of 'truncated text' where some of the text is obscured by an ellipsis (such as 'see more…') which must be clicked on to access the information. Where such features are used, firms must ensure that risk warnings are not obscured by the ellipses and are clear on the face of the promotion. If it is not possible to avoid this, firms should ensure as much of the warning or information as possible is displayed. Where rules allow shortened risk warnings, firms should ensure the shortened clause is clearly visible, and the full warning is included after click-through.
The FCA also identifies that there is growing presence of influencers operating on social media which engage in communicating financial promotions. These include:
- Celebrity influencers with large follower groups. Although not usually associated with financial services, such persons may be compensated for the use of their digital presence to promote companies with a business interest in making people make certain financial decisions;
- Financial influencers or 'finfluencers'. These may not be authorised by the FCA to provide financial advice but share their opinions on financial products and recommendations. Such advice is identified by the FCA as potentially misleading;
- Forums or discussion groups on financial topics. These may be public or private groups where participants exchange information and share knowledge. In some cases, these groups are set up to encourage participants to register for financial courses or sell financial advice or other products outside of the forum.
All these communications, both in the authorised space (where promotions have been approved by an authorised person) and the unauthorised space (where promotions have been communicated illegally) have the potential to cause harm. This is the case regardless of the size of an influencer's following. In response, the FCA points to its infographic created with the Advertising Standards Authority which is designed to help influencers when they are approached with the opportunity to promote a financial product or service. This highlights to influencers when they might be at risk of promoting financial services illegally, and encourages them to think if they are the right person to make the relevant promotion.
Firms which wish to respond to the Guidance Consultation are encouraged to do so here prior to 11 September 2023.
Ultimately, the use of social media to communicate financial promotions requires the careful application of a variety of rules and guidance to the specific features and limitations of social media platforms. In particular, this guidance highlights the difficulties of remaining compliant with the rules when using celebrity influencers or finfluencers and online forums to promote financial products despite these methods becoming increasingly popular.