By Elliot Mills, Senior Compliance Consultant
Millennials. A generation not only redefining cultural norms, but also reshaping the world of investing. Millennials are fast becoming the global economy’s main source of wealth and spending and, as such, are having a real influence on trends in every industry, including financial services – to the point that new regulation is required.
To previous generations, stock markets and investment portfolios seemed like distant realms accessible only to the wealthy or those fluent in financial jargon. Millennials have dismantled these barriers and disrupted established trends by embracing user-friendly platforms, apps and social media to support their unique approach to investing.
What’s more, millennials have experienced multiple major market swings in their lifetime, including market collapses, recissions, a global pandemic and growing concerns about social and environmental injustices. The scepticism such volatility creates as further spurred millennials and younger generations to turn to social media to guide their investment choices, rather than working with a financial professional and receiving investment advice in the traditional way.
FCA responds to growing investor reliance on social media
Accordingly, the UK’s Financial Conduct Authority (FCA), along with the wider financial services industry, has recognised that the social media appeal to the millennial investor “has become an increasingly vital part of firms’ marketing strategies”.
On 17 July 2023, the FCA opened a consultation on proposed guidance detailing how its financial promotion requirements apply to social media. The FCA’s aim is to ensure firms understand how its rules apply to social media and for firms to think carefully before promoting financial products or services on these platforms.
In their guidance, the FCA has reminded firms that all forms of communication, including social media, can be a financial promotion if it includes an invitation or inducement to engage in investment activity – even in private channels like Discord or Telegram.
Firms should also be aware that where third parties share financial promotions (e.g. retweets or re-posts), the originating firm remains ultimately responsible for complying with the rules.
The FCA’s Principle 3 (that a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems) applies to all authorised firms, including payments and e-money firms as well as more traditional investment firms and banks.
What you need to know about the FCA’s proposed guidance
Key takeaways for firms looking to communicate with investors via social media include:
- Audience vulnerability – When reviewing financial promotions, firms should consider influencers’ demographics and potential audience vulnerability when approving communications. The FCA and Advertising Standards Authority (ASA)’s “Finfluencer” infographic helps identify suitable promotions and warns against illegal communication
- Risk warnings – For firms using platforms such as Instagram, X (formerly Twitter), TikTok and YouTube, the appropriate prominent risk warnings must be displayed. For dynamic promotions using, for example, Instagram stories, risk information must appear early and be displayed consistently
- Complexity and suitability – Firms should consider whether their product/service is suitable for social media promotion. Social media might not suit complex products such as debt counselling
- Consumer Duty – Firms need to remember their Consumer Duty obligations, considering how financial promotions are distributed through social media and that the material may be accessed by a non-intended recipient through third-party sharing
- UK products for UK audience – Concerns were expressed by the FCA that consumers are unknowingly being directed to non-UK entities for services where they may not benefit from the protection of UK regulation. Firms should distinguish their social media profiles to have a solely UK-focused profile and utilise geo-location techniques to redirect consumers automatically to their UK website or mobile app
- Influencer understanding – For firms that use influencers to communicate financial promotions on social media, they should ensure that these influencers understand the product or service they are promoting and to be aware of the relevant rules
Next steps
The FCA’ s guidance consultation closed on 11 September 2023 and the regulatory body is currently in the process of updating its existing guidance on social media and customers communications (FG15/4) to be clearer and reflective of the current and future social media landscape. FG15/4 will subsequently be retired when the new guidance is finalised.
IQ-EQ offers a robust suite of compliance consulting and outsourced compliance services to all clients and can assist firms with understanding their obligations when advertising through social media channels.
