FCA to Control 'Finfluencers' and Illegal Promotions on Social Media

<p>The
Financial Conduct Authority (<a href="https://www.financemagnates.com/tag/fca/" target="_blank" rel="follow">FCA</a>) has announced its plans to ramp up its efforts to
combat illegal and non-compliant financial promotions. The proposed new social
media guidelines will modernize the information that firms should use when promoting
financial products or services online. </p><p>The British
FCA is currently consulting on extending its guidelines to account for contemporary ways that platforms like Facebook, Instagram and TikTok are used
to advertise financial services and products.</p><p>FCA Continues Its Efforts to Combat Illegal Financial Promotions</p><p>The FCA has
intensified its scrutiny of online, often illegal, financial promotions in
response to the rising popularity of 'finfluencers' and the potential for online
consumer harm. The FCA has also collaborated with the Advertising Standards
Authority (ADA) to educate consumers and influencers about the risks associated
with promoting financial products. </p><p>Last year,
the FCA required certain brokers <a href="https://www.financemagnates.com/forex/brokers/fca-orders-freetrade-to-pull-down-misleading-social-media-promotions/" target="_blank" rel="follow">to withdraw 'misleading' ads on social media</a>.
Furthermore, precise rules for promoting services and products in
the cryptocurrency market will start to apply in the country. <a href="https://www.financemagnates.com/cryptocurrency/fca-seeks-incentives-ban-with-new-crypto-promotion-rules/" target="_blank" rel="follow">Starting on 8
October 2023</a>, the FCA will prohibit incentives to invest in crypto, such as
'refer a friend' bonuses. Firms must introduce clear risk warnings and a
24-hour cooling-off period for first-time investors to contemplate their
investment decision. All these activities are part of <a href="https://www.financemagnates.com/forex/the-fca-wants-greater-investor-protection-this-is-their-plan/" target="_blank" rel="follow">the regulator's strategy</a>, which focuses on increasing the safety of the end
consumer.</p><p>Now, the FCA
has decided to address the problem more broadly and not limit itself solely to
the market of digital assets. The new regulations are to apply to all financial
instruments and their providers, who use popular social media platforms to
attract new customers.</p><p>"We’ve
seen a growing number of ads falling short of the guidance we have in place to
stop consumer harm,” Lucy Castledine, the Director of Consumer Investments at
the FCA, stated. “We want people to stay
on the right side of our rules, so we’re updating our guidance to clarify what
we expect of firms when <a href="https://www.financemagnates.com/terms/m/marketing/">marketing</a> financial products online. And for those
touting products illegally, we will be taking action against you.”</p><p>A few
months ago, <a href="https://www.financemagnates.com/forex/fca-taps-love-island-contestant-to-educate-finfluencers/" target="_blank" rel="follow">the FCA began educating finfluencers</a> to reduce the practice of
advertising dishonest 'get rich quick' schemes. The institution collaborated
with Sharon Gaffka, a prominent social media influencer in the country and
participant in the reality show dubbed Love Island.</p><p>Moreover,
the FCA has managed to secure changes in the advertising policies for several
Big Tech companies, allowing only financial promotions approved by FCA-authorized
firms. The regulator plans to continue this engagement to protect consumers.</p><p>The Rising Importance of
Social Media in Retail Trading</p><p>The steps
taken by the FCA are not baseless actions. The internet and social media are
places where people seek investment information and advice, increasingly making investment decisions on the opinions of influencers.</p><p>The study
prepared by the Cypriot market watchdog <a href="https://www.financemagnates.com/terms/c/cysec/">CySEC</a> revealed that about 22% of retail
investors made their investment decision based on digital promotions and
celebrity endorsements, whereas 42% researched the products and another 37% acted completely on recommendations from friends and family. While only 31% of the investors
sought advice from financial experts.</p><p>Further, 31%
of surveyed respondents make financial investments <a href="https://www.financemagnates.com/forex/cysec-finds-31-of-retail-investors-rely-on-finfluencers/" target="_blank" rel="follow">based on the
advice from a financial influencer</a> using platforms, such as TikTok, YouTube,
Instagram, and Twitter. In France, these decisions are made by as much as 42% of the respondents, while only
24% of Germans rely on finfluencers and 34% in the United Kingdom.</p><p>Tens of millions of people watch the top financial influencers. The record
holder is <a href="https://www.financemagnates.com/forex/largest-finfluencer-humprey-yang-has-54-million-followers-study-shows/" target="_blank" rel="follow">Humphrey Yang</a>, who is followed by 54 million people. Yang is a former
financial advisor, who now creates content on personal finance and
investing.</p><p>The FCA
believes that the materials presented by influencers often overly simplify the
complexity of some financial instruments. That's why the regulator wants to
consult with the industry on how to better control advertisements on social
media.</p>

This article was written by Damian Chmiel at www.financemagnates.com.