Opinion  

Social media, the third line of defence?

The FCA’s Social Media and Customer Communications Guidance Consultation (GC14/06) published over last summer closed for comment on 6th November. The focus of the consultation was on providers’ use of channels like Twitter and Facebook to promote financial product offerings. The paper focuses on the application of Principle 7 – applying the ‘fair, clear and not misleading’ test for every blog post and Tweet.

It basically means you need to apply the usual health warnings when promoting a financial product via social media. So a fund manager’s social media promo will need to provide past performance information and also give risk indications. Both risks and benefits need to be appropriately balanced in the communication. Invitations or inducements to participate need to be couched in health warnings about the risks of doing so. COBS rules on cold calls and other promotions also need to be considered in the context of social media marketing campaigns.

Social media is the sort of channel where a personal recommendation is likely to be given more freely than with other, more formal channels of communication. But if providers are deemed to have given that personal recommendation this is tantamount to regulated advice, the guidance suggests.

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Defining this middle ground between information and advice, sometimes called simplified advice, is proving very hard to do. The FCA is coming under increasing pressure to lock this definition down- particularly as the ticking timebomb of Freedom Day gets louder. Come April, many over 55s are likely to be cashing out of their pensions, potentially disadvantaging themselves financially through ever longer retirements, many without first accessing financial advice.

This picture just got more complicated still as providers are being asked to form the ‘second line of defence’ (behind the Pensions Wise website, as well as online and telephone-based services of TPAS and face-to-face guaranteed guidance from CAB). Again, providers are pressing for clearer regulatory guidelines to clarify when information provision about retirement choices could step over into personal recommendation/regulated advice. Providers are understandably nervous about where the liability for pensions ‘freedom’ decision-making may fall, if and when it all goes wrong.

The truth is the line between information provision and recommendation naturally blurs as the industry uses the much more interactive and immediate social media channels in customer communications. We have not yet worked out how to prevent this blurring. We need to build systems which detect when ‘the information provider’ has stepped over a line from providing information/quotes etc. and into an inferred (or even overt) recommendation without appropriate warnings being provided.

The other key line that providers, as the new ‘second line of defence’, are treading is the one between ensuring positive outcomes for customers while also delivering a pleasant customer experience. Few of us enjoy being read reams of caveats over the phone or ploughing through disclaimer questionnaires online but how do we avoid this and yet understand the risks of buying a financial product fast over the internet?

Finally, while communicating via social media channels seems like yet another regulatory hot potato, it should not all be seen as gloom and doom. Some companies are currently developing big data offerings that are able to gather sentiment-based trends data from analysis of tens of thousands of pieces of information flowing in public forums around the internet each day. Much of this data is created and shared, in unstructured form, over social media platforms.