The Financial Conduct Authority has clarified its guidelines for financial promotions as it continues to clamp down on social media ‘finfluencers’ in the wake of Kim Kardashian receiving a $1.26 million fine in the US for promoting cryptocurrency.
The regulator said it wanted to address “emerging consumer harm” arising from the use of social media and warned that media influencers who promote a regulated financial product or service without approval of an appropriate FCA-authorised person may be committing a criminal offence.
In October 2022, reality TV star and influencer Kim Kardashian agreed to pay $1.26 million in penalties and fees for unlawfully promoting Ethereum Max, after failing to disclose to her millions of online followers that she had been paid $250,000 to publish an Instagram post about EMAX tokens.
Since October 2023, firms wishing to promote cryptoassets in the UK must be authorised or registered by the FCA to have their marketing approved by an authorised firm.
The regulator reiterated that promotions must be clear, fair and not misleading, labelled with prominent risk warnings and must not inappropriately incentivise people to invest.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “Regulators are clearly horrified at the damage superstar celebrities can do to the bank balances of vulnerable consumers. The delusions of quick riches can spread far too rapidly on social media with speculation amplified by reports by millions of followers. The FCA wants to send out reminders to celebrities and other influencers about the risks they run if they don’t understand the rules.
“The watchdog is worried that too many financially vulnerable people are being lured into ‘get rich quick’ schemes. It has repeatedly warned that investing in crypto currencies is extremely high risk and that speculators risk losing all their money.”
The fresh warning from the FCA comes as crypto enjoys a surge in demand, with Bitcoin jumping more than 7% in 24 hours and headed back above the psychologically important $70,000 mark.
Laura Suter, director of personal finance at AJ Bell, commented: “The regulator is trying to tackle a very large, very hard-to-grasp beast by bringing in tighter regulation on social media adverts for financial products. There has inevitably been a surge in paid-for promotions of financial products, particularly cryptocurrencies, in recent years. We know that social media plays a huge part in people’s research of investment products, particularly among younger, newer investors.”
According to the FCA, one in six investors used social media to either research investments, find new opportunities or get updates on existing investments but this number rose to half of all investors aged 18 to 24.
Suter added: “The FCA is sending out a warning signal to finance companies and influencers that they need to stick within the rules when it comes to social media.
“The surge in support and information online when it comes to finances and investing can provide a real helping hand for newcomer investors. These finfluencers can help to explain key concepts that could in turn enable people to make better-informed financial decisions. But there is a darker side to many of these posts, and a significant risk of finfluencers spreading misinformation or encouraging high-risk behaviour, such as day trading in individual stocks, without properly explaining those risks. There’s a real danger that financial social media becomes a Wild West, rather than a space to get accurate, clear information on financial planning.”
Suman Rao, managing director for the UK and Ireland at Avaloq added: “Social media is still something of a Wild West when it comes to financial services. While it can play a role in broadening the reach and appeal of beneficial financial solutions, it also brings risks if promotions and other communications are not sufficiently regulated.
“According to our research, over a quarter of UK investors consulted social media for investment advice (27%) in 2023, a four-percentage point increase on 2022 (23%). The guidance from the FCA is therefore a welcome development.
“Financial advice can be complex, and it is vital that finfluencers do not oversimplify it on their social media channels. This highlights the important role of established financial institutions in ensuring high ethics and trust in today’s digital era, and thanks to their prudent approach to marketing and their robust rules around financial promotion, these firms now have the advantage of already adhering to the standards set out by the FCA.
“These guidelines will help establish the necessary regulatory framework for a social media sphere which better protects consumers. We look forward to seeing how this guidance develops to create a fairer and safer environment for people engaging with financial service providers online.”
Main image: jievani-weerasinghe-NHRM1u4GD_A-unsplash
