FCA cracks down on promotions after 164 cases fall foul of rules

Between 2019 and 2022, the FCA recorded at least 31 cases where a total of 59 promotions were flagged with regulated firms for being non-compliant.

Over the same period, the FCA said it asked social media pages to be taken down in a further 133 cases relating to unauthorised firms spread across Instagram (96), Facebook, and TikTok (3).

The data, retrieved through a Freedom of Information request, was sent to FTAdviser last week (December 1).

Today (December 6), the FCA said changes being introduced by parliament will require authorised firms to undergo new screening checks before they are allowed to approve financial promotions in an effort to "crack down" on rogue financial promotions.

We have seen examples of authorised firms approving financial promotions for products which are completely unrelated to the firm’s permissions and areas of expertise.FCA

Under the proposed changes, firms would be required to regularly report back to the FCA on financial promotions they have approved.

Current legislation allows any authorised firm to approve financial promotions on behalf of non-authorised firms.

"Social media and online advertising means that consumers are taking less time between seeing a promotion and making a financial decision," said executive director for markets at the FCA, Sarah Pritchard.

"These proposals will ensure those approving ads have the appropriate expertise and are held accountable for the promotions they sign off."

The FCA has published a consultation paper on the changes, asking firms for responses before February 7, 2023.

Dubbed "a new regulatory gateway", the screening checks will form part of the financial services and markets bill which was introduced to parliament back in July by the Treasury.

In its consultation paper, the regulator said it had seen examples of authorised firms approving financial promotions for products which were "completely unrelated" to the firm’s permissions and areas of expertise.

The current system, the regulator said, runs the risk of authorised firms approving promotions which are misleading, inaccurate or inappropriate for the intended consumers because the approving firm does not have sufficient understanding of the relevant product or service.

"We have identified cases where authorised firms have approved financial promotions which do not comply with our rules because the approving firm has not undertaken sufficient due diligence for the product or service being promoted to be able to properly assess the promotion before approval," the FCA said.

'Misleading' claims

Back in February, the FCA ordered authorised investment platform Freetrade to remove all paid-for social media influencer posts after an influencer suggested consumers in debt could use the platform to make money.

The City watchdog concluded that the posts were "misleading" as there was no guarantees that any investment would result in positive gains in the short or long term.

In the majority of cases where regulated firms have been in breach due to their social media posts, the FCA has not published notices.

The regulator told FTAdviser that where firms' social media posts have been non-compliant, it has sent letters expressing its concerns to those firms direct.

It will either contact the firms themselves or individuals at their principal firms.

According to the FOI submitted by FTAdviser, there was an increase in social media-related cases for authorised firms in 2021, seeing the total jump from 10 to 14 (40 per cent).

But the FCA labelled this increase “minimal” in its response.

Cases regarding authorised firms where the primary media type is ‘social media’

Source: The FCA

The regulator highlighted that the figures it supplied to FTAdviser in the table do not include cases where the primary media recorded is not social media, but a social media promotion may have been raised as a secondary issue.

This means the FCA has likely encountered more than 59 in-breach social media posts shared by regulated firms over the past three years.

Head of personal finance at AJ Bell, Laura Suter, said the FCA is "turning up the heat" on influencers touting investment schemes, crypto platforms or other trading schemes.

"The FCA is aiming to make it harder for adverts and promotions to be approved, in a bid to stop people handing over their cash for investment schemes based on inaccurate social media posts," said Suter.

“The FCA has been slow to move on tackling the huge number of social media posts luring people into investing in high-risk schemes or crypto trading without stating the real risks involved. Its latest move is to have more oversight of the adverts and promotions that are put out to advertise all manner of investments.

'One of the most common themes'

At the end of last month, the FCA created a new 'Early and High Growth Oversight' function designed to provide "closer supervision" and help firms through the first stages of being authorised.

During 2021 to 2022, the regulator ran a pilot with 32 newly-authorised firms to help them adapt to its supervision.  

The pilot found one of the most common themes was how well these firms understood rules on promoting financial products to the public.

"Some firms were describing their products and services as 'FCA approved' on their websites. We don't 'approve' firms' offerings; we authorise firms and give them permission to offer regulated products and services," the FCA said.

"Similarly, firms wrongly claimed on their websites 'We worked with the regulator to deliver a product/ service'. We don’t work with firms to develop what they offer."

'Phase 2' 'of the pilot has seen the FCA increase the number of newly-authorised firms it is reviewing to 300.

The regulator has also provided webinar training to around 500 individuals and firms to remind them of its financial promotions rules and share examples of common pitfalls.

ruby.hinchliffe@ft.com