By Ryan Weeks on 16th March 2015
Last Thursday the FCA published its finalised guidance on the matter of financial promotions in social media. The UK regulator offered some insight into its position on this matter back in August 2014 by launching an official Guidance Consultation. Engagement with the consultation was somewhat ironically promoted/tracked via a number of forms of social media. The hashtag #SMFCA was tweeted 523 times during the consultation window. 27,653 laid eyes upon the paper via the LinkedIn.
It’s fair to suggest that a hefty portion of those observers were representatives of the alternative finance space. The various platforms – particularly the crowdfunders – are avid social media users. For fundraisers, “going viral” is sought after. Ergo the FCA’s final guidance on the subject of social media is bound to generate a lot of chatter within the alternative finance space. We’ve summarised some key takeaways from the report.
The FCA covered all angles in assessing the appropriateness of social media as a means of financial promotion. As the regulator itself noted, all forms of media have their constraints when it comes to promotion – and social media channels are no different. It is crucial, however, that firms are cognizant of those restraints – and that the appropriateness of every social media post that promotes a complex financial instrument has been thoroughly considered by the firm responsible.
Character limits were cited as a key concern. Twitter posts, for example, are limited to 140 characters in length. The regulator has expressed concerns over whether such promotions are capable of complying with regulatory requirements. It is very difficult to both promote a product and provide ample amounts of risk warning within a mere 140 characters.
The regulator had proposed a number of potential solutions. Hashtags – such as #ad – had been forwarded as a potential method for identifying financial promotion. The FCA has now shied away from that, owing mainly to the fact that hashtags on Twitter are clickable. Funneling customers through to a page dedicated to the hashtag #ad could cause a good deal of confusion.
The FCA considers that most social media promotions will be self-evidently promotional. However, any post wherein the promotional element is obscured – via journalistic content, for example – will require clear signposting (“ad/advert/promotion”).
Instead, image usage is being looked to as the best available remedy. Many social media forms allow for the attachment of an image to a post. If the risks associated with a given financial promotion can be clearly conveyed alongside the benefits within an image – then the FCA appears to be all for it. But the message that sits attached to such images must employ “signposting language”. If an attached message were to create a financial promotion, then that promotion would need to be “standalone compliant”. In other words a risk warning embedded within an attached image does not excuse misconduct within the leading message. The reason for this is that pictures do not always appear automatically – and thus any risk warning runs the risk of going unnoticed.
All financial promotions made via social media must strive to be clear, fair and not misleading. That’s hardly surprising. This is important even when posting to an audience of seemingly authorised persons. The capacity for sharing via social media means that promotions can often end up in unintended hands. For that reason amongst others, firms must strive to make eminently plain the ups and the down of any financial product.
During the FCA’s consultation period on this matter, which incidentally attracted 67 formal responses, some respondents argued that a social media post ought to be viewed as the first stage in a journey of financial promotion. The argument is that if a post directs customers to a particular webpage, that webpage should be treated as “stage two” of the financial promotion – satisfying any regulatory requirements that were left unsatisfied by the original post. The FCA does not subscribe to this line of argument. Each individual post must be standalone compliant.
With the huge volume of sharing, re-posting and rehashing that takes place on social networks, the FCA has come to some important conclusions around responsibility. I mentioned above that firms are advised to be wary of the fact that posts may end up on the news feeds of retail customers – whether deliberately or otherwise. But if such a situation occurs – a retail investor being inappropriately lured into buying a financial product via a retweet – who is responsible? The retweeter. The responsibility lies with the communicator. Similarly, if an employee of a firm decides to laud his company’s performance via social media, alongside some form of inducement or invitation, then that too amounts to a financial promotion.
On the flipside, financial services companies also need to be cautious when sharing the opinions and/or endorsements of their customers via social media. Depending on the content of the re-post, such actions may also constitute financial promotion.
In an effort to sensibly process and enforce the new rules, the FCA now requires that an appropriately senior member of any relevant firm has oversight of all digital media communications. Further to that, "significant communications" must henceforth be kept track of via appropriate means. Firms will need to be judicious in terms of what they consider to be “significant communications”. This record of social media activity may serve as crucial evidence if a firm is required to demonstrate its compliance with FCA regulation.
Regulating the usage of social media in financial promotions is not straightforward. It carries the same basic challenge as does the even more complex question of installing and maintaining a supervisory framework for the alternative finance sector: how do you safeguard against the risks without hampering the vast potential of this innovative and exciting space?
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.