The FCA has finally weighed in on the usage of social media within the financial services space.
The proposed rules will have a massive implication for alternative finance platforms – which make markedly greater use of social media channels than traditional finance providers. The primary purpose of the FCA consultation is to flesh out guidelines to the use of social media in terms of promoting services and offerings. For those platforms that are concerned by the proposed regulations – and there certainly will be some – the publication is open for comment until November 6th 2014. It's commonplace for platforms to tweet, post and share updates. Twitter, LinkedIn and even Facebook posts range from general plugs issued by a platform about its services, to the advertisement of individual campaigns in need of funding, to industry and platform-related news items. Below are listed a few tweets from the alternative finance providers Syndicate Room and Platform Black.
This week's biggest mover is Oval. Oval's patented autoinjectors are transforming the lives of patients: http://t.co/tsBoZABdyS #investaware— SyndicateRoom (@SyndicateRoom) August 7, 2014
Do you need a working capital source to support growth plans? Yes: http://t.co/5wyLBrO9ZM— Platform Black (@platformblack) August 7, 2014
There are many observers of the industry who harbour concerns over the potential of social media to drum up a frenzy of support for products which investors may not fully understand. For a particularly benign example of a campaign going viral, take a look at Kickstarter’s recent “Potato Salad” phenomenon. The aim of this particular project was simply – as you may have guessed – to create a potato salad. More than $55,000 from just shy of 7,000 backers has now been pledged in support of that cause. Whilst this is an obvious bout of light-heartedness, with backers clearly aware that there’s nothing to be gained from offering up cash for salad, it does offer an insight into the swell of funding that “viral” projects can attract. Apply that same hysteria to a product advertising some kind of financial return and you begin to enter a potentially dangerous territory.
On the flip side, mass sharing via social media channels can be of great benefit in terms of making sure that businesses and individuals get the funding that they sorely need. Some people are fearful that the FCA’s stance on social media will be damaging to the industry. Barry James, Founder and CEO of the CrowdFunding Centre, issued the following statement in relation to the FCA’s proposed regulation of social media usage in equity crowdfunding in mid-July:
“The FCA, whose mantra is that you must be ‘clear, fair and not misleading’, is guilty of breathtaking hypocrisy; they fail all three tests, and it is no longer possible to regard this as some kind of confusion or oversight.”
“Those who deal with them, and are brave enough, will tell you they habitually deploy this kind of misdirection and are no stranger to full-on bully-boy tactics. However, misleading ministers and so Parliament is a new low. Not only are they exceeding and extending their remit into social media and the crowd itself, extending complex FSMA (Financial Services and Markets Act 2000) rules intended to control adverts into control ordinary folk, it looks like they are responsible for causing Treasury Minister Andrea Leadsom to unwittingly mislead Parliament in response to a written question to the Chancellor.”
Nick Moules, Marketing and Communications Manager at Rebuildingsociety, commented on the use of social media and its place within alternative finance:
"Social media has been a powerful force in turning alternative finance into a global movement - it has certainly played a big part in connecting platforms and sharing data.
We find businesses that are in tune with social media are more likely to borrow through a peer-to-peer platform and in turn they raise awareness of alternative finance with their connections.
It's symptomatic of society becoming more social and mobile, but we try to avoid using it for any sort of promotions - it's quite well documented that social media doesn't sit well with existing financial promotions rules. Hopefully these can be amended to reflect society's preference for social media."
Goncalo de Vasconcelos, Founder and CEO of SyndicateRoom, also commented:
"A crowd is inherently social so there will always be a place for a social element of a crowdfunding campaign. However we believe the FCA is right to be concerned about misleading and non-factual information being shared through these channels. The whole industry has to work together to make sure that social media is used correctly and wisely to create a larger and better informed crowd."
The FCA stated that the objective of the consultation was to:
You can view the full consultation below.
FCA Guidance Consultation on Social Media and Customer Communications (1)
26 May 2023
25 May 2023
31 May 2023
26 May 2023
30 May 2023