Partner Richard Coopey explores the recent crackdown and how UK firms and individuals should best navigate it.

Richard’s article was published in Thomson Reuters Regulatory Intelligence, 11 November 2024, here.

In a recent post on its website, the Financial Conduct Authority (the “FCA”) made a prominent announcement headed “FCA cracks down on illegal finfluencers”. The post explained that 20 financial influencers (finfluencers) are being interviewed under caution by the FCA, as it “launches targeted action against finfluencers who may be touting financial services products illegally.” The FCA also noted that it had issued 38 alerts against social media accounts operated by finfluencers which may contain “unlawful promotions”.

These announcements came only a few months after the FCA took legal action in relation to another group of finfluencers. Under the headline “Finfluencers charged for promoting unauthorised trading scheme”, the FCA announced in May that it had brought charges against nine individuals in relation to an unauthorised foreign exchange trading scheme that had been promoted on social media.

Primarily targeted at millennials and Gen Z users, online financial advice has become big business. Data from the FCA shows that 62 percent of those aged 18 to 29 follow social media influencers, and that 74 percent of them said that they trusted their advice. Social media has fuelled their interest in financial topics as finfluencers make them more engaging and accessible, particularly for novice investors who may struggle to comprehend the opaque world of personal finance.

As a result, the number of finfluencers has mushroomed, with YouTube, Instagram, TikTok and Facebook increasingly populated by self-proclaimed ‘finance experts’ who feed an increasing appetite for personal finance content that focuses on spending, saving, investment, online trading, and tax. A FINRA study in December 2022 found that more than 60 percent of US investors under 35 use social media as a source of investment information, compared to 57 percent who use financial professionals.

Through short, often entertaining videos that use creative tools, memes and metaphors, finfluencers explain financial concepts in simple terms to large numbers of new retail and non-professional investors. Finfluencers now comprise an increasing part of the wider influencer industry, whose global revenues run into the tens of billions of dollars.

The combination of accessible information from familiar individuals has seen some prominent finfluencers gain millions of followers. These influences often also showcase an apparently lavish lifestyle, implying to their followers that they too could enjoy the same if they just follow the finfluencers’ lead. Critically, they are often trusted by those who follow them, many of whom are young, often naïve and even potentially vulnerable. A significant risk exists that some finfluencers may spread misinformation or promote high-risk financial behaviour to individuals who lack the ability to critically access the information that they are receiving.

A distinction should be drawn, however, between good and bad practice: some finfluencers do act in good faith and aim to provide solid educational content, demystifying complex aspects of saving or investing and helping individuals to make better-informed financial decisions. Nevertheless, they still need to be careful not to cross any red lines.

To make those lines even more transparent, the FCA published guidance In March 2024. It warned firms and finfluencers to keep their social media ads lawful in memes, reels and gaming streams that promote financial services, and to be on the “right side of the rules” when using such promotions.

Adverts across social media channels “must be fair, clear and not misleading, meaning they must have balance and carry the right risk warnings so people can make well informed financial decisions”, according to the guidance. The FCA also warned firms they need to ensure that influencers they work with “communicate to their followers in the right way.”

Media reports suggest that the FCA’s most recent clampdown on errant finfluencers involved 20 individuals being interviewed voluntarily using the financial watchdog’s criminal powers. It is unknown whether they are based exclusively in the UK, or elsewhere.

The FCA could face potential jurisdictional difficulties in bringing some overseas finfluencers or firms before the English courts. However, the UK regulator benefits from a long track record of cooperation with many of its international counterparts, as well as foreign law enforcement agencies. Operating on a reciprocal basis, the FCA also has specific powers to provide information in support of foreign investigation and enforcement actions.

Even in a post-Brexit world, the FCA remains a well-respected player in the global regulatory system. It is therefore likely to be able to operate successfully in conjunction with its counterparts in most other jurisdictions.

Given the recent flurry of FCA activity in relation to finfluencers, what else can we expect? It appears likely that the FCA will continue to take a mixed approach. In practice, that means marrying enforcement against individuals with crackdowns against the firms which offer services and collaboration with social media platforms.

Notably, Chapter 5 of the Online Safety Act already requires social media platforms to have systems in place in order to prevent and remove false advertising, including misleading financial promotions. Given the current level of focus on the topic, it would seem probable that when the relevant codes of practice are eventually settled by the UK parliament, they will specifically address the issue of financial promotions.

Over recent years, the FCA has championed its data driven approach. In doing so, it has been quite open about its use of specific tools, such as “web scraping“, to identify potential scams. As with every application of data, the FCA’s approach does not negate the need for a human touch – both in managing the data operation, and in subsequent investigations.

Data serves as a tool, not a panacea. It will not therefore alter either the fundamental focus or the operational use of the FCA’s investigation and enforcement powers.

As is evident from the FCA guidelines, firms that offer financial products would be well-advised to ensure that finfluencers are given clear scripts to use in any promotions, that have been approved by internal risk teams and potentially by external legal advisers.

Most finfluencers are perhaps unlikely to have the necessary specialist knowledge and understanding of the products that they are promoting. It is therefore incumbent on the financial businesses themselves to ensure that promotions are not misleading and that any risks are clearly outlined.