International regulators have shown themselves to be uncompromising in their approach to crypto assets. In June 2023, the Markets in Crypto Assets Regulation (MiCA) entered into force across all 27 members states in the European Union with the primary aim of protecting consumers. Issuers must implement robust AML (anti-money laundering) procedures to identify and verify the identity of their customers, monitor transactions, and report any suspicious activity to authorities.

Almost simultaneously, the Financial Conduct Authority (FCA) introduced tough new rules for marketing crypto assets in the UK, requiring those who promote them to put clear risk warnings in place and to ensure that advertisements are clear, fair and not misleading. As an indication of the FCA’s overall view of crypto, the rules were accompanied by a robust warning from Sheldon Mills, The FCA’s Executive Director, Consumers and Competition:

“It is up to people to decide whether they buy crypto. But research shows many regret making a hasty decision. Our rules give people the time and the right risk warnings to make an informed choice. Consumers should still be aware that crypto remains largely unregulated and high risk. Those who invest should be prepared to lose all their money.”

In October 2024, another crypto-related post appeared on the FCA website. Under a prominent headline, “FCA cracks down on illegal finfluencers”, the post explained that 20 financial influencers (commonly known as 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 further noted that it had also issued 38 alerts against social media accounts that were operated by finfluencers which may contain “unlawful promotions”. The tone of the language used to announce the FCA’s crackdown on finfluencers amplifies the robust nature of its stringent regulatory oversight.

The FCA also took legal action in relation to another group of finfluencers in May 2024. Under the headline “Finfluencers charged for promoting unauthorised trading scheme”, the FCA announced that it had brought charges against nine individuals in relation to an unauthorised foreign exchange trading scheme that had been promoted on social media.

Generally targeted at millennials and Gen Z users, financial advice has become big business through multiple online channels. Recent data published by the FCA shows that 62 percent of 18-to-29 year-olds follow social media influencers, and that a remarkable 74 percent of them said that they trusted their advice.

Equally remarkable is that 74 percent of those who followed financial guidance from social media either lost money, or experienced an undesired outcome, according to research by Capital One. In other research published last year, 71 percent of the financial advice young people consume via social media is misleading, according to a study by Social Capital Markets, which analysed more than 2,470 stock-related videos across the most used platforms: TikTok, YouTube and Instagram.

These and other social media platforms have fuelled young people’s interest in financial topics as finfluencers endeavour to make them more engaging and accessible, particularly for novice investors who can often struggle to comprehend the invariably opaque world of personal finance.

As a result, the number of finfluencers has grown exponentially. The most popular platforms, such as YouTube, Instagram and TikTok, as well as Facebook, have become increasingly populated by self-proclaimed ‘finance experts’ who feed an increasing appetite among young people 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.

To unpack the complex world of personal finance, the methodology used is simple. Through short, snappy, and often entertaining videos that use a variety of creative tools, memes and metaphors, finfluencers explain financial concepts in straightforward language 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.

Familiar faces combined with accessible information has proved to be a winning combination: it has led to some high-profile finfluencers gaining millions of followers. Typically, these well-known individuals often showcase an apparently lavish, sometime glitzy lifestyle, which implies to their followers that they too could enjoy something similar if they just follow the finfluencers’ lead.

Critically, they enjoy high levels of trust from those who follow them, many of whom are young, often naïve and therefore potentially vulnerable. There is a significant risk that some finfluencers could spread misinformation or promote high-risk financial behaviour to individuals who lack the knowledge or capacity to critically access the information that they are receiving, or watching online.

It would be wrong, however, to stigmatise all finfluencers as malign or incompetent. A distinction needs to be drawn between good and bad practice: some finfluencers do act in good faith and aim to provide solid educational content by 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 both to firms and would-be finfluencers, the FCA published guidance in March 2024. In deploying memes, reels and gaming streams that promote financial services, it warned them to keep their social media advertising lawful and to be on the “right side of the line” when such promotional tools are used.

According to the FCA’s guidance, any adverts shown 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 also warned firms that they need to ensure that influencers with whom they work, “communicate to their followers in the right way.”

Media reports have suggested 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.

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

Despite operating in a post-Brexit world, the FCA has lost none of its international status or influence: it remains a well-respected player operating at the highest level in the global regulatory system. In practice, this makes it likely that the FCA will be able to continue operation successfully in conjunction with its counterparts in most other jurisdictions.

Given the recent level of frenetic activity by the FCA in relation to finfluencers, what else might we expect in future? It seems probable that the FCA will continue to adopt a mixed approach, which means combining enforcement against individuals with crackdowns against the firms that offer services and collaboration with social media platforms.

Other legislation also exists to curtail the limits of advertising on social media platforms in order to protect consumers. In particular, Chapter 5 of the Online Safety Act already requires them to have systems in place in order to prevent and remove false advertising, including misleading financial promotions. Given the current level of scrutiny in this area, it would seem likely that when the relevant codes of practice are eventually settled by the UK parliament, they will specifically deal with the issue of financial promotions.

Over the past few years, the FCA has done much to champion its data driven approach. In doing so, it has been quite frank about its use of specific tools, such as “web scraping”, to identify potential scams. Like every application of data dealing with sensitive or complex areas, the FCA’s approach does not dispense with the need for a human touch, both in managing the data operation, and in subsequent investigations.

The FCA recognises that data should serve as a tool, not a panacea. It will not therefore change either the fundamental focus or the operational use of its investigation and enforcement powers.

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

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