FCA clamps down on investment app’s use of social media influencers

The FCA’s intervention comes amid concerns that consumers are being targeted to invest in high-risk products by “fin-fluencers”: social media celebrities devoted to sharing financial advice on TikTok, Twitter and Co. Despite the FCA’s support for innovation, this is a shot across the bows, with the regulator intervening in real-time to protect vulnerable investors. 

Protecting vulnerable consumers in the digital age

In a second supervisory notice issued on 8 February 2022, the FCA upheld its decision to ban the investment app Freetrade from using paid-for social media promotions and remove all existing paid-for promotions from its social media channels, citing concerns over Freetrade’s partnership with a well-known fin-fluencer. 

This fin-fluencer had gained widespread media interest, including over 64,000 followers on TikTok, by posting about their story of repaying £38,000 in personal debt and offering tips to help others with money worries. Since April 2021, they were also promoting Freetrade’s commission free trading services via sponsored TikTok videos, announcing that they had “partnered” with Freetrade.  These posts encouraged viewers to visit the app’s website to gain a “free” share. 

The FCA took the view that any promotions shared via the fin-fluencer’s account could reach a wide audience quickly (given its popularity) and would be particularly attractive to already indebted consumers, who look to the fin-fluencer for advice and guidance on how to manage personal debt. As such, it considered that the fin-influencer’s videos promoting Freetrade – when viewed in the context of their  profile – may lead viewers to believe that they could clear their debts by investing with Freetrade (when positive returns could not be guaranteed). The FCA also found the risk disclosures used to be insufficient, thus making the promotion misleading and in breach of FCA Conduct of Business Rules.

The action comes against a backdrop of concerns that social media frenzies are pushing young, unexperienced consumers into investments in high-risk products. The FCA wants DIY investors to understand the risks of engaging with financial services online and will hold firms responsible for ensuring that sponsored influencer promotions comply with FCA rules. 

Freetrade failed to meet this responsibility because it did not “have appropriate oversight of the influencer’s financial promotions”, suggesting that firms might need to exercise a similar level of oversight for sponsored influencers as they do for appointed representatives. This comment follows recent FCA policy proposals to strengthen rules applying to firms approving financial promotions, which look to ensure that firms approving financial promotions are held to high standards.

The FCA challenges Fintech

It is no surprise that the FCA did not let Freetrade off the hook lightly. It is well-known that the FCA is looking to tighten its financial promotion rules to protect vulnerable customers in the digital world.  Just a week before the notice was published, it warned that firms’ use of influencers had become a concern. 

The action also demonstrates that the FCA takes the findings of the Gloster Report and the Parker Report seriously and is preparing itself to become a digital-age regulator. Both reports criticised the FCA for allowing firms to exploit the “halo effect” of FCA authorisation when advertising unregulated products without prominent warning. When firms receive FCA authorisation, this amounts to the FCA declaring that a firm is capable of satisfying conditions for authorisation in respect of its regulated activities/services. It does not however amount to FCA approval of all of the firm’s activities (including those which are unregulated) nor each customer communication.  

The FCA addressed these criticisms head on when it called Freetrade out for omitting risk warnings on promotions that included a headline saying “invest with trust” with a tick, which suggested individualised FCA approval of each marketing communication. 

The FCA expects online advertisements to explain clearly the extent of FCA approval and any risks involved.  Such expectations are particularly challenging for Fintech firms, who rely on snappy, easily digestible ad campaigns, to reach their target market. Comprehensive risk warnings do not fit easily into a 16 seconds TikTok video, let alone make for viral content.

The proactive regulator  

This is one of the first examples of a decision taken under the FCA’s new “streamlined” decision-making process, with the FCA intervening just 10 months after notifying Freetrade that it was considering supervisory action.  We do not know how the FCA become aware of this social media campaign, but it has previously said that it might use social media monitoring and web scraping.

The action calls on firms carefully to review their online marketing strategies. With “fin-fluencers” blossoming online, the FCA is gearing-up to take action early when it identifies potential consumer harm.