UK Financial Conduct Authority pushes through with landmark prosecution of 'finfluencers'

Nine individuals have had charges brought by the Financial Conduct Authority (FCA) in relation to the promotion of an unauthorised foreign exchange trading scheme on social media.

The FCA has solidified its position on the communication of unauthorised financial promotions online by seeking to prosecute the nine individuals (including seven social media influencers) regarding alleged breaches of financial promotion rules.

This comes in the wake of recent FCA guidance on financial promotions on social media that sets out clear rules for firms and influencers on how to navigate this activity.

The nine defendants will not have to wait long for their cases  to be heard, with six of the defendants having appeared before Westminster Magistrates Court on 13 June 2024. The plea and trial preparation for these six defendants is set for 11 July 2024. The remaining three defendants are due to have their first hearing on 3 July 2024. 

The legal background

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.

Breaching FSMA – for example, by communicating an unauthorised financial promotion – is a criminal offence punishable upon conviction by an unlimited fine or up to two years’ imprisonment or both.

Allegations against those running the business

The FCA claims that between May 2018 and April 2021, two individuals, Emmanuel Nwanze and Holly Thompson ran an Instagram account under the handle "@holly_fxtrends", which gave advice on the buying and selling of contracts for difference (CFDs).

CFDs are financial contracts used to bet on whether the price of an asset will rise or fall, in which one party agrees to pay out the difference between the trading purchase price and the trading selling price at an agreed date in the future, depending upon whether they bet correctly or not.

CFDs are considered high-risk investments (the FCA states that 80% of customers lose money when investing in CFDs) as they are often highly leveraged and use debts to increase returns. The FCA has, therefore, imposed restrictions on how CFDs and similar products can be sold and marketed to retail consumers, including that they require FCA authorisation to promote – and this authorisation the FCA alleges the business in question did not have.

Mr Nwanze faces one count of undertaking a regulated activity without the requisite authorisation or available exemption – known as a breach of the "general prohibition" – under section 19 of FSMA, and one count of making unauthorised communications of financial promotions under section 21 of FSMA.

Ms Thompson faces one count of unauthorised communications of financial promotions under section 21 of FSMA.

Allegations against the influencers

The FCA also alleges that seven Instagram influencers were involved in the unauthorised promotion of the @holly_fxtrends Instagram account to their combined 4.5 million followers, influencers that  include former members of reality shows such as The Only Way is Essex, Love Island and Geordie Shore.

The FCA's statement on the financial influencers or "finfluencers" charges outlined that the seven influencers were paid by Mr Nwanze to promote the Instagram account and trading scheme, and each influencer, therefore, faces a charge of issuing unauthorised communications of financial promotions under section 21 of FSMA.

Osborne Clarke comment

This is a landmark step from the FCA, as it is the first time the FCA has sought to prosecute social media influencers allegedly connected to the communication of unauthorised financial promotions online. While the decision to prosecute is significant, it is not necessarily surprising, given the warnings previously published by the FCA and the recent guidance on the publication of financial promotions on social media.

It also mirrors the approach taken by the ASA in the promotion of financial products online, particularly in its emphasis via its finfluencer guidance, that businesses and influencers could be on the wrong side of the law if they promote a financial product or service, without being clued up.

The prosecution also confirms the hard-line approach the FCA is taking against both firms promoting their financial products and services in an unauthorised way, and influencers who are involved in the promotion of such products and services. It emphasises the importance the FCA places on its recently published financial promotions guidance and the "Consumer Duty" (the duty under which the FCA places standards of consumer protection across financial services), particularly when consumers are targeted online.

This is an important case due to the future implications it is likely to have on the use of social media to communicate financial promotions. Businesses that engage with social media or other influencers to promote their financial products and services should be mindful of this increased scrutiny, and of the importance of vetting and monitoring such promotions and influencers to ensure they are on the right side of the law.

We shall be following this case in future Insights but, in the meantime, if you would like any further information or advice on how the recent decisions affects you or your business, speak to one of our experts in the Financial Institutions Group of the Commercial team.

Sophie Mullarkey, a Trainee Solicitor at Osborne Clarke, co-authored this Insight.