Financial Conduct Authority  

FCA chief warns social media firms on risky investments

FCA chief warns social media firms on risky investments
Credit: Jason Alden/Bloomberg

The chief executive of the Financial Conduct Authority (FCA) has warned social media firms that it will act if consumers are subjected to risky investments through their platforms.

In a speech today (April 20) as part of UK FinTech Week, Nikhil Rathi warned online search and social media firms needed to take greater responsibility for their role in connecting consumers with risky or fraudulent investments.

He said the low interest rate environment had pushed a growing number of investors to search for better returns online but too many of these opportunities proved "too good to be true".

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He reiterated the FCA’s call for the government to provide better financial protection for consumers online but in the meantime, he said, the FCA would crack down on any firm breaking financial promotions rules.

Rathi said: "We see no reason why different standards should apply to a search engine or social media compared to a newspaper.

"If these platforms choose to display and profit from adverts for risky – and in some cases fraudulent – investments, they should also comply with financial promotions rules.

"Consumers shouldn’t be subject to lower standards, or greater risks, because they find an investment online. We’re looking at how social media platforms are adapting to these new rules. If needed, we will take action. Consumers – and firms – benefit when financial promotion rules apply fairly to both digital and more traditional media."

Last month the FCA warned that young investors were taking on too much risk when investing, highlighting a greater use of investment apps (as well as YouTube and social media) as a reason for this.

The FCA found investors with less than three years’ experience were more than twice as likely to rely on YouTube or social media for research or finding investment opportunities. Amongst that same group, only two in five believed that losing some of the money they invest was a genuine risk.

Rathi, who joined the FCA as chief executive in autumn last year, added that the regulator is currently reviewing its Regulatory Decisions Committee, the final decision maker on contested enforcement, supervisory and authorisation interventions, with a view to enabling it to act quicker when concerns about firms have arisen.

“Our review asks whether decisions on authorisation or on supervisory interventions could be made in a more streamlined way,” he said.

“And whether this would better enable quick, decisive action, particularly to prevent entry or allow removal from our markets of those unable or unwilling to meet our standards.”

Also covered in the speech was an update on the watchdog’s sandbox which helps advisers bring new services to market.

The FCA confirmed that 137 firms have now passed through the sandbox, and over half of those have completed the test to ensure their ideas are safe before they reach the market.

Rathi said those tests that did not go as planned “provided intelligence about what works and what doesn’t, without risk to consumers or markets.”