Financial promotions: FCA New Social Media Guidance Consultation
On 17 July the FCA published a consultation for their updated social media guidance for financial promotions. This is a welcome revision to their original guidance which was first published back in 2015 and it seeks to reflect the world of social media we now live in – whether we like it or not.
Financial promotions are a notoriously difficult area of compliance to get right. Even with the extensive guidance in PERG it can still be difficult to navigate the regime. From the underlying legal framework of exemptions to the detailed rules and guidance, there are a lot of different factors for firms to take into account. When this is coupled with new requirements such as the consumer duty and fundamental commercial imperatives, it is easy to see why firms struggle to get their financial promotions right.
We think this guidance is particularly helpful for firms who are new to regulation, for example cryptoasset firms, and those who don’t have compliance teams with deep understanding and experience of the regulatory requirements for financial promotions. Experienced compliance professionals will probably find that there isn’t much here they didn’t already know or had considered, but it is still helpful to have some clearer guidance on the regulatory perimeter in relation to influencers for example.
Why are financial promotions important?
Before we look at the updated guidance, we think it’s important to have a quick look back at why the regulator places so much emphasis on financial promotions. These are two quotes from one of the original financial promotion publications from what was then the Financial Services Authority back in 2002:
Firms use financial promotions to promote their brand, raise consumer awareness about product availability, or to make their products stand out in the minds of consumers, as well as using them to sell direct to consumers. Financial products are intangible and often complex, and many consumers have a poor understanding of how they work. The setting of advertising standards is therefore particularly important in the financial services sector because of the potential to mislead consumers or give rise to unrealistic expectations.
It is important that consumers are provided with the information they need to make choices that reflect their wishes. The information should be clear, fair and not misleading. If consumers’ choices are based on information that is not relevant to their wishes and preferences, their decisions will be flawed, and they may choose products that are unsuitable for them. If the information has the potential actively to mislead, the risk of unsuitable buying increases.
The FSAs regulatory approach to financial promotions
Even though these quotes are now more than 20 years old they are still relevant today. Fundamentally regulatory expectations have not changed even though the world we now live in looks quite different. Essentially, financial services firms still want to market and sell intangible and often complex products through a relationship where they have all the power and knowledge. This imbalance creates real risks to consumers if firms fail to get their promotions right, risks which we now see highlighted through the consumer duty.
What’s new in the guidance?
As we noted above, this guidance will be really helpful for firms in particular those who are new to navigating financial promotions compliance. We think the particular highlights are:
Explaining the legal framework – the operation of the financial promotions framework is complex and it is essential that firms are clear about when the requirements bite. Whilst there is extensive guidance in PERG which is super helpful, this is only likely to be read by compliance and legal professionals. This new guidance gives a helpful summary of the scope and meaning of the S21 financial promotion restriction amongst other things.
Social media promotions – there are some simplistic but helpful mock up examples of good and bad promotions on different types of social media. Producing a compliant promotion is challenging or sometimes impossible for some types of product or service on social media. The updated guidance recognises this and discusses the key points which firms should consider when they want to promote their products and services on the different platforms.
Use of influencers – the regulator recognises that there is no going back from the use of influencers to sell financial services. We think the guidance is helpful in explaining the relative responsibilities here. Firstly, any unauthorised person, including influencers, need to consider their legal position when communicating a financial promotion. Unless an exemption applies, doing so without approval from an authorised person may be a criminal offence. Secondly, regulated firms need to think about the systems and controls they need to put in place if they want to work with influencers. For example, what additional checks do they need to build into their due diligence processes and how are they going to monitor promotions and outcomes once live.
Also included in the guidance is a discussion around the meaning of “in the course of business” and how this might apply to different influencer scenarios. This is an important consideration when working out whether the promotion falls within the regulatory perimeter or not.
Consumer duty prompts – as we get to the implementation deadline it is useful to have some refreshers on the consumer duty obligations in relation to financial promotions. There is a reminder that firms who use influencers should ensure they understand the products or services they are promoting and are aware of the applicable rules. Firms need to think about how they will achieve this in practice. The guidance also confirms that if a firm is approving an influencer promotion, they must consider the likely target market and take account of any identified vulnerabilities. Again, firms need to think about the steps they need to take to ensure the promotions are appropriate and deliver good outcomes for all customers.
Conclusion
We think this is a good update to an already helpful piece of regulatory guidance. Whilst we understand that the regulators hands are tied in terms of what they can say about the interpretation of their own rules, much of what we see and hear from the FCA in terms of guidance is pretty vanilla and not always that useful, especially for more experienced firms. Updating this guidance, particularly at a time when the consumer duty requirements will come into effect and new crypto firms are being caught by the financial promotions regime for the first time, is a timely intervention by the regulator.
Our regulatory experience in relation to financial promotions is second to none. Not only do we possess years of advisory experience, our team have worked in the financial promotions team at the regulator and have actually approved financial promotions in industry. So we understand the dynamics and challenges a firm can face in producing a compliant promotion and can also help you get the underlying systems and controls right.
Emma
