UK FCA guidance leaves little creative freedom for financial promotions online

The UK Financial Conduct Authority (FCA) has released its finalised guidance on financial promotions on social media, which provides direction for firms and influencers on how to navigate financial promotions using social media.

Under the Financial Services and Markets Act 2000 (FSMA) it is a criminal offence to communicate an invitation or inducement to engage in investment activity; unless the communication is made by a person authorised under the FSMA, has been approved by a person authorised under the act with the requisite permission, or the communication relies upon an exemption. This is the basis for what is known as the "financial promotions regime". (The term "investment activity" in this context is potentially misleading, as it has a wide meaning that covers a broad range of financial services and products.)

There are two aspects to complying with the financial promotions regime: being able to legally communicate a financial promotion; and complying with any content or conduct of business rules when communicating a financial promotion.

Who does the guidance apply to?

The guidance applies to authorised persons who use social media as a marketing tool and unauthorised persons, including influencers or affiliates who are involved in social media-based financial promotions.

What does the guidance say?

In providing a background to the financial promotions regime and high-level guidance as to what amounts to a "financial promotion", the FCA's starting position is that "communications" extend to social media – on public and private channels alike, including chatrooms and one-to-one direct communications. Accordingly, promotional activity on social media is, in the FCA's eyes, caught by the financial promotions regime in the same way as through traditional media.

Nuanced approach

Within this context, the FCA applies its existing approach to financial promotions to the nuances involved in using social media. Firms must ensure that their financial promotions are communicated legally. Each communication must, when considered on an individual basis, also comply with the content rules of the financial promotions regime (this is known as "standalone compliance").

Marketing strategies must be considered in light of the Consumer Duty and, in particular, how use of social media aligns with the overarching obligation to deliver good outcomes for retail customers. Content must be sufficiently clear to aid consumer understanding and, where certain target markets are identified, consideration needs to be given as to whether particular social media platforms are more (or less) appropriate than others.

Anyone actively communicating financial promotions through social media would generally be doing so in "the course of business", which usually suggests that there is a commercial element. However, the FCA has confirmed that even if a communicator is not making a communication for direct remuneration then they are still likely to be doing so in the course of business where the purpose of the communication is to improve their brand, increase views or obtain likes.

Sharing or forwarding a financial promotion is potentially a separate communication of a financial promotion. There are risks in third parties being able to share promotions, if for example the sharing reaches audiences not originally intended as the recipients of the promotion.

There are risks associated with affiliate marketing and firms need to have proper oversight and control over what their affiliates communicate, including ensuring that affiliates understand what they are promoting and monitoring what is communicated by them.

In addition to more general legal requirements on marketing through electronic media, there are specific restrictions in using social media to make unsolicited promotions. While on the one hand the FCA confirms that tweets or similar social media posts would not be seen as unsolicited real-time communications, on the other hand being a follower of a firm's social media account or liking a post would not constitute having established a client relationship, as is required in some contexts before unsolicited promotions can then be communicated.

However, the guidance does offer some help to marketing departments, in that certain image advertising – which can include a firm's name, logo or other images linked with the firm – together with factual information about a firm, may well be considered outside of the financial promotions regime entirely, depending upon the area of financial services.

Fair, balanced and compliant content

The guidance sets out that promotions must provide a fair and balanced view of the product or service being promoted, with risk warnings displayed sufficiently prominently. What is an acceptable degree of prominence will depend on the type of media being employed; but, for example, the expectation is that short reels or videos on video sharing platforms will include risk warnings for the entire clip and not in the caption to the video or for only part of the clip.

In making an assessment on what balanced promotions mean, firms should consider their target audience, the information that customers would need to know, and what decisions a consumer would need to make before accessing the product or service.

Where firms are promoting more complex products that might require further information, the guidance states that links may be used – but these must be brought to consumers' attention. However, there may be instances where firms need to decide if the nature of the particular social media platform is appropriate for the type of product or service intended to be promoted.

Does the guidance reflect the ASA's position?

In the context of financial promotions, the FCA and the Advertising Standards Authority (ASA) have separate but overlapping mandates, responsibilities for which are set out in a memorandum of understanding between the two regulators.

This confirms the position that the FCA is the lead regulator for online, non-broadcast financial advertising and regulates the technical aspects of these areas, while the UK's independent advertising regulator complements this work and covers the non-technical aspects of claims. Firms should be aware that, as well as complying with the FCA's guidance, they also need to comply with ASA rules and guidance.

CAP Code financial product rules

The UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (CAP Code) chapter covering financial products sets out specific rules.

The CAP Code stipulates that ads must be set out in a way that can be easily understood by their audience and must not take advantage of consumers' inexperience or credulity.

Ads should include details of the nature of the contract offered, any limitation, expense, penalty, charge and the terms of withdrawal, or make these details available to consumers before they enter into the contract.

The basis of the claim to calculate the rate of interest, forecast or projection must be apparent immediately.

Ads should make clear the value of investments and, unless guaranteed, these can go down as well as up. If the value is guaranteed, the ad must explain this.

And, if past performance or experience is used in a claim, this should not be unrepresentative and the ad should make clear that this does not necessarily give a guide for the future.

Rules overlap

There is, therefore, a clear overlap between CAP Code rules and the FCA's guidance in the advertisement of financial products. Alignment is also reflected between the guidance and existing ASA and FCA "finfluencer" guidance, which is directed towards influencers who are approached with the opportunity to promote financial products. As a result, if a firm is meeting the FCA's content requirements and guidance, they are likely to be on their way to complying with ASA rules.

However, firms should remember that, when advertising financial products, they must also take into account and comply with general rules of advertising online and on social media, including that ads must be legal, honest and truthful, not cause serious or widespread offence and be created with social responsibility in mind.

Crucially, the ASA in publishing its 2024-2028 strategy  "AI-assisted collective ad regulation" confirmed that it is looking to prioritise the most vulnerable, including those who are financially vulnerable, and scale up the monitoring of online ads via their artificial intelligence-based Active Ad Monitoring system from the 3 million ads processed in 2023 to 10 million in 2024.

Osborne Clarke comment

With the focus on protecting the financially vulnerable and a notable increase in proactiveness, it is likely that online financial promotions will be a key part of the ASA's focus over the next few years. Firms should, therefore, ensure they keep in mind and comply with CAP Code rules and ASA guidance, in addition to the FCA's guidance when making financial promotions online.

The FCA guidance provides a useful starting point for firms in developing a social media strategy and highlighting areas of risk. The FCA recognises that social media can be an incredibly useful tool in reaching certain sections of the community, but that use of social media comes with its own unique set of considerations. Marketing and social media teams will need to work together with legal and compliance colleagues to balance the requirements of the regulatory regime with the creativity that social media allows, ensuring that social media audiences receive the same protections and as those of traditional media.

Firms also need to ensure they comply with more general electronic media obligations, with knowledge of the legal requirements and regulatory expectations of both the FCA and ASA an essential element of establishing a social media strategy. It may, for example, be prudent to create a set of guidelines for influencers and other types of affiliate marketeers in order to support a firm's compliance with its legal and regulatory obligations.  

Now that the FCA has published this guidance, we are likely to see an increase in FCA scrutiny of firms' social media presence, with action being taken against those who have failed to take into account – and can demonstrate that they have taken into account – the FCA's guidance.

Sophie Mullarkey, a Trainee Solicitor with Osborne Clarke, contributed to this Insight.

If you would like any further information or advice on how the guidance affects you or your business, speak to one of our experts in the Financial Institutions Group.