The Financial Conduct Authority has launched a consultation which is intended to clarify its approach to the supervision of financial promotions in social media.
From extensive conversations with industry over the past 18 months, the FCA is fully aware of the increase in firms’ use of digital media for customer communications and specifically for financial promotions. More particularly, firms are using, or wanting to use social media for their communications with customers. However, many firms perceive difficulties in complying with some of the FCA rules, particularly with the financial promotion rule for character-limited forms of social media such as Twitter. The FCA has therefore published a consultation which sets out its approach and seeks feedback.
Clive Adamson, Director of Supervision at the FCA said:
"The FCA sees positive benefits from using social media but there has to be an element of compliance. Primarily, what firms do on social media must ensure customers are at the heart of their business.
"Our overall approach is that financial promotions, whether on social media or traditional media, should be fair, clear and not misleading. We have had extensive industry engagement on this issue and we believe our guidance is a sensible approach that doesn’t affect industry’s ability to innovate using new forms of media. We recognise social media are constantly evolving. We, therefore, welcome feedback to today’s consultation and look forward to continuing the discussion with industry."
The FCA’s approach to social media
The FCA’s overall approach is that the financial promotion rules are intended to be media-neutral to ensure that consumers are presented with certain minimum information, in a fair and balanced way, at the outset of firms’ interaction with them. The rules include sector-specific requirements but in each case there is an overarching principle that any communication should be fair, clear and not misleading.
The FCA recognises that social media particularly are powerful channels of communication and therefore of significant value to firms. The FCA does not want to prevent their use. These media allow firms to contact their customers, and vice versa, both pre- and post-sale. However, firms are reminded that any form of communication (including through social media) is capable of being a financial promotion, depending on whether it includes an invitation or inducement to engage in financial activity. Therefore it remains a fundamental requirement that all communications (including financial promotions) are compliant.
Communications through social media can reach a wide audience very rapidly, so firms should take account of that in their decision to promote through social media, and the nature of their promotions. Firms should therefore ensure that their original communication would remain fair, clear and not misleading, even if it ends up in front of a non-intended recipient (through others re-tweeting on Twitter or sharing on Facebook). A way of managing this risk is the use of software that enables advertisers to target particular groups very precisely.
The requirements to be fair and not misleading imply balance in how financial products and services are promoted, so that consumers have an appreciation not only of the potential benefits but also of any relevant risks. Firms should consider the appropriateness of character-limited media as a means of promoting complex features of financial products or services. It may be possible to signpost a product or service with a link to more comprehensive information provided that the promotion remains compliant in itself. Alternatively, it may be more appropriate to use ‘image advertising’.
The consultation paper sets out in further detail specific areas that firms need to consider, and provides some solutions and illustrative examples. These include:
- Promotions for investment products – There is a specific requirement that financial promotions for investment products are identifiable as such. The FCA’s view is that – for social media in particular – it is important that, in all cases, it is clear that a promotion is a promotion. One generally accepted way to do this, for character-limited media, is the use of #ad in online posts.
- Stand-alone compliance – Each communication (e.g. a tweet, a Facebook insertion or page, or web page) needs to be considered individually and comply with the relevant rules.
- Risk warnings and other required statements – Firms are reminded that there are requirements to include risk warnings or other statements in promotions for certain products/services. These rules are media-neutral and therefore apply to social media as they would to any other medium. When taken into account with the supervisory approach to standalone compliance, this poses particular challenges for the use of character-limited social media. One solution to the problem of character limitation is to insert images, such as infographics into tweets, which allows relatively unrestricted information to be conveyed. However, where the financial promotion triggers a risk warning or other information required by our rules this cannot appear solely in the image.
- Image advertising – The FCA reminds firms that it remains possible to advertise their presence in the market through ‘image advertising’ in a way which is unlikely to present difficulties with character limits.
The FCA developed this proposed guidance following engagement with other regulators both in the UK and overseas and other interested stakeholders. The FCA has also had significant contact with industry over the course of the last year to better understand their concerns around the use of social media.