Partner Richard Coopey discusses the FCA’s recent crackdown on finfluencers and how to best ensure compliance.

Financial influencers, commonly referred to as “finfluencers”, have found themselves in the crosshairs of the Financial Conduct Authority (the “FCA”). That much is evident from the FCA’s website which catalogues its concerted campaign against the most egregious finfluencers who intentionally transgress their rules.

The most recent example is a prominent post on the FCA website. Under the headline “FCA cracks down on illegal finfluencers”, the post details the action taken against 20 finfluencers, who are being interviewed under caution as the FCA “launches targeted action against finfluencers who may be touting financial services products illegally.” The FCA further notes that it has issued 38 alerts against social media accounts “operated by finfluencers which may contain unlawful promotions”.

These announcements are the latest in a series of measures taken by the FCA against finfluencers this year. In May, the FCA also took legal action in relation to another group. In a post headlined “Finfluencers charged for promoting unauthorised trading scheme”, the FCA announced that it had brought charges against nine individuals. The charges related to an unauthorised foreign exchange trading scheme that had been promoted on social media.

Finfluencers have been quick to recognise that online financial advice is big business, especially when targeted at millennials and Gen Z users. According to research by the FCA, 62 percent of those aged 18 to 29 follow social media influencers, while 74 percent of them said that they trusted their advice. Social media engagement in financial topics has been fuelled by finfluencers who have succeeded in making them more engaging and accessible. There is particular concern that this approach brings potentially inappropriate financial products to the attention of novice investors for whom the details of personal finance can be challenging and opaque.

As the number of finfluencers continues to mushroom, self-proclaimed ‘finance experts’ have enlarged their footprint on Facebook, Instagram, TikTok and YouTube. They feed an increasing appetite for personal finance content that focuses on spending, saving, investment, and online trading.

According to a FINRA study published in 2022, a majority of younger US investors view social media not only as a viable alternative to traditional financial advice, but also a preferred option: more than 60 percent of those under 35 use social media as a source of investment information, compared to 57 percent who use financial professionals.

Using short, snappy videos that are underscored by creative tools, memes and metaphors, finfluencers seemingly simplify financial complexities seeking to make them accessible to a growing army of retail and non-professional investors. Finfluencers also play an increasing role in the wider influencer industry, where annual global revenues are in the tens of billions of dollars.

A wealth of accessible information from prominent finfluencers has seen some of them gaining millions of online followers. High-profile influencers often showcase an ostensibly high-profile lifestyle, implying that anyone could achieve the same success if they simply follow their lead.

Critically, they are frequently trusted by their followers: mostly young, often naïve and potentially vulnerable. Against this backdrop, there is a significant risk that some finfluencers could either spread misinformation or advocate high-risk financial behaviour to people who lack the knowledge or understanding to evaluate the information they receive.

There is, however, a distinction to be drawn, between good and bad practice. Not all finfluencers are trying to mislead or encourage people to take unnecessary risks.  Some of them do act in good faith, helping individuals to make better-informed financial decisions by providing solid educational content that demystifies complex aspects of saving or investment. But they still need to be careful not to cross any red lines.

The FCA published guidance in March, designed to make those lines even clearer. In the memes, reels and gaming streams they use to promote financial services, it cautioned firms and finfluencers to keep their ads on social media lawful and to be on the “right side of the rules” when using such promotions.

According to the guidance, adverts that appear 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.” The FCA further warned firms that they need to ensure that influencers with whom they work must “communicate to their followers in the right way.”

The most recent clampdown on errant finfluencers involved 20 individuals being interviewed voluntarily by the FCA under the financial watchdog’s criminal powers, according to media reports. It is, however, unknown whether they are based exclusively in the UK, or not.

In trying to bring some overseas finfluencers or firms before the English courts, the FCA could potentially face jurisdictional difficulties. These could be mitigated by the UK regulator’s long track record of cooperation with most of its international counterparts, as well as foreign law enforcement agencies. Reciprocity often lies at the heart of such arrangements with the FCA also enjoying specific powers to provide information in support of foreign investigation and enforcement actions.

Notwithstanding Brexit, the FCA remains a highly respected player in the global regulatory community, which means that it can operate successfully in conjunction with its counterparts in most other jurisdictions. Notably US regulators, such as FINRA and the SEC, have expressed similar concerns regarding the impact of finfluencers on investor behaviour. Likewise in Germany, BaFin has also expressed apprehension about the risks their impact may pose.

Given the recent escalation of FCA activity in relation to finfluencers, what else might we anticipate? It seems likely that the FCA will continue to adopt a blended approach. In practice, that will mean combining enforcement against individuals with crackdowns against the firms that offer services and collaboration with social media platforms.

Under Chapter 5 of the Online Safety Act, social media platforms are already required to have systems in place in order to prevent and remove false advertising. That includes misleading financial promotions. Given the FCA’s current focus on the issue, it seems quite likely that when the relevant codes of practice are eventually determined by the UK parliament, they will specifically address financial promotions.

Over recent years, the FCA has put significant effort into championing its data driven approach. As part of that strategy, it has been quite transparent about its use of specific tools, such as “web scraping“, in order to identify potential scams. Like every application of data, the FCA’s approach does not preclude the need for a human element – both in managing the data operation, and in any subsequent investigation.

It should be remembered data serves as a tool, not a panacea to every problem. The fundamental focus and the operational use of the FCA’s investigation and enforcement powers will not therefore be altered.

As the FCA guidelines make clear, firms that offer financial products and use finfluencers to promote them would be well-advised to ensure that they are given clear scripts to use in any promotions. Before that point, those scripts should have been approved by internal risk teams and, potentially, by external legal advisers.

In practice, most finfluencers are unlikely to have the requisite specialist knowledge and understanding of the products that they are promoting online. Accordingly, it is incumbent on the firms to ensure that promotions are not misleading in any way and that any risks are clearly flagged.