Rising trend: the influence of ‘finfluencers’

Last month, the Financial Conduct Authority (FCA) provided a timely reminder that ‘finfluencers’ trading illegally in breach of the general prohibition will be held to account.

On 16 May 2024, the FCA reported that they are prosecuting nine individuals for running unauthorised investment schemes or issuing unauthorised financial promotions between 2018 and 2021. These individuals are due to appear before Westminster Magistrates Court on 13 June 2024, and, if found guilty, they face up to two years imprisonment, an unlimited fine, or both.

These first nine individuals are just the tip of the iceberg, with many firms now turning to ‘finfluencing’ to introduce new and accessible financial products via channels like TikTok and Instagram. Often, these ‘finfluencers’ lack the necessary approvals or exemptions to distribute the products they sell.

‘Finfluencers’ often have a wide appeal, with several reality stars from Love Island and The Only Way is Essex involved in this case, who have 4.5 million followers between them. This widespread influence means the potential harm to customers is significant.

Firms and individuals planning to distribute in this space should be aware that restrictions apply even if the communication originates outside the UK, provided it can have an effect in the UK. This serves as a crucial reminder for firms using ‘finfluencers’ to review the latest guidance on financial promotions released earlier this year.

While using TikTok and Instagram appears to be an easy way to market – providing access to a huge audience with minimal investment – things are not that straightforward. Firms must consider several factors, including the necessity of being clear, fair, and not misleading. Seeking expert advice on using these platforms correctly and appropriately is highly advisable, as the rules of engagement are complex.

Authorisation, exemption or illegal?

There are several ways firms can use ‘finfluencers’ to offer financial promotions via social platforms legally. The most straightforward method is for the ‘finfluencer’ to be directly regulated themselves. Alternatively, they can operate as an appointed representative of a regulated firm or benefit from one of the few existing exemptions.

Managing product-specific regulations

Different products have different considerations for ‘finfluencers’. For instance, unregulated collective investments (such as those involving emerging markets or high-risk investments) are illegal to market. Products like Contracts for Difference (CFDs), high-risk derivatives, can result in investors losing more than they invested. The FCA has previously reported that 80% of customers lose money when investing in CFDs, with many losing more than their original investment. By contrast, an insurance product can only be introduced by a ‘finfluencer’ in the most basic terms and cannot contain advice unless the ‘finfluencer’ is regulated.

Ensuring compliance: strategies for financial promotion oversight

There are various rules for approving financial promotions, including the content and specific wording required when promoting certain products. It is easy to fall foul of these regulations or overlook them. Firms must have appropriate monitoring and oversight systems to ensure promoters and affiliates understand their responsibilities and do not communicate illegal or non-compliant financial promotions. Advertisements on social media platforms need to uphold principles of fairness, clarity, and truthfulness. This involves achieving a balanced representation and including appropriate risk warnings to enable individuals to make informed financial choices.

Expert guidance for compliance

The rules around financial promotions are far from simple, and firms should consider seeking expert advice if they are unclear about the legality of their financial promotion activity. At GreenKite, we are experienced in managing these complex waters, offering a range of support and consultancy services to firms on their financial promotions. We can support your firm and chosen influencers by guiding you through the legality or exemptions that might apply and providing advice on content, warnings, and other requirements for compliant ‘finfluencing’ or offering financial promotions via social media.

Additionally, we have extensive experience providing website reviews and toolkits to help firms build and follow effective processes, reducing regulatory risk in financial promotions. If you are using or considering using social platforms or wish to ensure your website’s financial promotions are compliant, please contact us to discuss your needs.

Contact us at [email protected] or +44 (0)203 576 1868.