Well you've got to be careful what you wish for, especially when marketing financial services to consumers. Whilst oversight controls might not sound like something to get animated about, failing to have appropriate controls could result in a supervisory notice from the FCA, as Freetrade Limited recently found out.
Everyone in working in financial services should know that communications with consumers need to be clear, fair and not misleading. Treating customers fairly should be at the heart of financial services culture. Therefore it isn't surprising that FCA oversight extends to financial promotions via social media, however firms may find that their existing processes aren't fit for purpose.
The challenges
Creation
The first key difference is where the content originates. Social media influencers have their own brand. If you are paying them to promote your brand, in order for the content to be a success with their followers it needs to feel authentic. The influencer will not want the content to feel corporate and stilted. Ideally the influencer should have an organic interest in what they are promoting. A firm's normal way of briefing content won't necessarily protect them. There are emerging risks to consider.
Financial services firms can say "we want you to promote X within these parameters", however the influencer is unlikely to follow a script. The content will be briefed, created and then there is an expectation that it is signed off. If the firm isn't happy with it then what do they do? How many times do they re-shoot? …what does the contract say?
Contract
Contracts with influencers don't tend to work the way that financial services firms expect. Influencers and their agents tend to use standard booking terms. We would recommend that financial service firms try to negotiate these terms. When you delve into standard terms, it is not the influencer that is on the hook. They'll expect the firm, as the client, to confirm to them that the content doesn't breach Advertising Standards Agency (ASA) rules. There can also be catch all terms about complying with Competition and Markets Authority (CMA) rules and applicable law. They tend to be silent on financial services and FCA compliance.
Even though the contract may be silent on FCA compliance, an applicable law catch-all clause, together with the client giving the influencer warranties over the content, can put it all on the firm. The liability provisions are often limited to the fee paid to the influencer.
Firms need to think ahead: if it all goes wrong what is their recourse? How can they make the approval process robust? If the influencer acts without their approval what do they do? Whilst the ASA notice may be issued against the influencer, the firm is likely to be the bigger name: it is their reputation that could be severely impacted. Firms also need to account to consumers and to the FCA. If there is ambiguity over the scope of the agreement with the influencer, a firm could find themselves in trouble.
Control
The Second Supervisory Notice issued to Freetrade states that:
To the extent that (i) there is a commercial partnership between the Firm and a social media influencer and (ii) the social media influencer operates within the scope of that agreement with the Firm, the Firm is responsible for ensuring the compliance with FCA rules of the influencer’s financial promotions that are relevant to the Firm’s business.
It sounds easy enough to match up a financial services firm with an influencer that has a complementary brand. In reality it can be quite tricky. Screening of influencers and their background is important. Reputationally firms don’t want to be associated with influencers that do things that contradict their brand, e.g. a firm that has committed to net zero paying an influencer that only travels in private jets. The optics aren't great. More important than the reputational optics is the consumer harm lens.
In the case of Freetrade, the social media influencer has a following in excess of 64,000 followers on TikTok. Their TikTok page is predominantly about clearing debt quickly. The FCA took the view that their profile is one which:
"vulnerable or indebted consumers could be particularly attracted to (alongside other audiences who are not vulnerable or indebted). The Authority considers that the influencer’s financial promotion video, viewed in the context of her profile, may lead viewers to believe that if they invest with the Firm they will clear their debt, encouraging them to invest. However, the Authority considers this to be misleading as there are no guarantees of positive returns on any investment, which may further exacerbate the financial position of those already in debt."
Firms don't just need to think about the content. Firms need to seriously consider the intended audience and the potential audience. The other thing to note is that a risk warning won't necessarily save you. In this case the FCA said that:
"Despite the inclusion of the capital at risk warning included in the TikTok promotion, the Authority considers the risk disclosure to be insufficient, the promotion misleading and the influencer’s financial promotion to therefore be in breach of COBS 4.2.1R."
The prominence of the risk warning should not be forgotten about. Character limits for social media content and the captions can be limiting. That doesn't mean firms should overlook them and "accept the risk". Given all the media coverage on the ASA taking action against influencers who don't recognise ads properly, most influencers know they need to put #ad #sponsored upfront. The majority of them are not familiar financial promotions rules. That is where firms need to be clear on expectations.
This will become even more important in July once the Consumer Principle and Consumer Duty take effect.
If firms are thinking about using social media influencers to market Consumer Credit (CCA) products, they need to keep in mind that marketing to under 18s is a criminal offence. Firms need to be confident in the promotion and their data when it comes to targeting. Firms may feel comfortable on all that now, but if they are paying an influencer to post on the influencer's pages then it is likely that the majority of their controls and mitigants fall away.
In my view, appropriate oversight controls mean those that specifically address the risks of paying social media influencers to create and promote content.
