With an objective to curb the rising tide of financial misinformation and its consequential harm, the UK’s chief financial watchdog is set to bring social media under its oversight. The Financial Conduct Authority (FCA), intends to extend the application of its new consumer duty to social media posts.
This decision comes as part of a broader effort to stem what the regulator refers to as “significant consumer harm” emanating from inappropriate and illegal financial promotions online.
The UK guarding against harmful misinformation
The FCA’s new consumer duty mandates all financial entities, including banks, insurance companies, and similar firms, to prioritize customer benefits.
By extending this obligation to social media content, the UK regulator aims to rein in problematic advertising trends that have seen a significant uptick in recent times.
Director of consumer investments at the FCA, Lucy Castledine, underscored the urgency of the situation, pointing to a rising trend of financial promotions that overlook consumer protection.
Asserting the FCA’s zero-tolerance stance, she warned against illegal product marketing, affirming that the authority wouldn’t hesitate to take punitive action.
Among the FCA’s concerns is the emerging trend of ‘finfluencers’ – social media influencers who endorse financial products – and companies leveraging these influencers for promotional purposes.
A notable risk is that influencers often promote complex financial services without fully comprehending them. This lack of understanding has resulted in a considerable volume of promotions that fall foul of legal compliance or completely mislead consumers.
This trend is particularly worrisome given that a substantial number of consumers, especially young people, tend to trust social media influencers’ advice.
Research by MRM consultancy substantiates this, revealing that nearly three quarters of young people trust information disseminated by social media influencers.
In addition, a 2021 FCA survey showed that nearly 60% of under-40s who invested in high-risk financial products did so based on social media posts.
To counter this, the FCA plans to make companies accountable for affiliate marketing strategies, compelling them to monitor how influencers use their affiliate links and ensure responsible communication with customers.
The proposed regulations will also encompass memes and similar content often used to market high-risk investments like cryptocurrencies.
The implications of these new rules
The push for regulations comes at a time when digital assets are under intense scrutiny in the UK. With crypto fraud losses surging by over 40% to £306 million in the year to March 2023, the FCA is broadening its regulatory net.
The new rules will not only apply to local companies but also to non-UK companies whose promotions can be accessed by UK consumers. This change could potentially impact large crypto exchanges operating outside the UK.
In light of the regulator’s proposals, advertisements for a wide range of services, including buy now, pay later services, debt counseling, peer-to-peer lending, and personal loans, may soon fall under new regulations.
These initiatives run parallel to the Online Safety Bill currently in the House of Lords, which seeks to impose a “duty of care” on major online platforms to protect users from fraud and harmful content.
The FCA’s proactive approach signals its commitment to mitigating the negative impact of misleading financial information on social media, fostering a more secure digital financial landscape for all UK consumers.
