UK regulator warns ‘finfluencers’ to adhere to advertising rules

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The UK’s financial regulator has warned that so-called “finfluencers” who flout advertising rules face potential criminal prosecution, as it laid out new guidance on the promotion of financial products.

The Financial Conduct Authority said on Tuesday that if social media influencers promote financial products or services without proper approval or authorisation, they may be committing a criminal offence punishable by up to two years in prison, an unlimited fine, or both.

The rules form part of new regulations, known as the consumer duty, introduced last year, designed to better protect customers. They stipulate that financial promotions must be communicated in a way that allows consumers to “make effective decisions”.

Lucy Castledine, director of consumer investments at the FCA, said: “Promotions aren’t just about the likes, they’re about the law. We will take action against those touting financial products illegally.”

Financial promotions are becoming increasingly common, with nearly two-thirds — 62 per cent — of 18 to 29-year-olds following social media financial influencers, according to McCann Relationship Marketing. Some 74 per cent said they trusted the influencers’ advice.

The regulator warned firms they are “on the hook” for all their promotions and need to ensure the influencers they work with communicate to their followers in the right way. It added that consumers should be alert to dubious adverts and scams online.

The rules apply to all companies advertising to British customers and also cover private or invitation-only social media channels, such as Discord and Telegram.

The FCA wants to limit “significant consumer harm” and has increased scrutiny of financial promotions, removing 10,000 misleading adverts last year, up from 8,500 in 2022.

“The FCA position is consistent — adverts and financial promotions must comply with basic standards however they are presented,” said Matthew Nunan, a partner at law firm Gibson Dunn and former enforcement official at the FCA.

“There are clear benefits to using platforms that encourage a broader section of society to understand and engage with financial products,” he added. “However, there are also real risks if social media is used poorly, particularly where influencers and their followers may not be aware that they are promoting products that are regulated for good reason.”

About 95 per cent of the FCA’s “interventions” over misleading advertisements in the last quarter of 2023 were related to online promotions, the FCA said.

The consumer duty, which came into effect last July, has seen the FCA crack down on savings rates offered by banks as well as investment and pension platforms withholding interest payments on customers’ cash balances.

The regulator has also warned financial advice firms over high charges, which resulted in wealth manager St James’s Place overhauling its fee structure last year.

It will also start to name firms under investigation more frequently and at a much earlier stage in an effort to increase the deterrence effect probes can have on the market.