FCA Attempts to Navigate Firms through the Stormy Waters of Social Media Promotions

06 August 2015

Author: Olivia O'Kane
Practice Area: Media and Entertainment


In response to the increasing use of social media as a platform for advertising financial products, the Financial Conduct Authority (FCA) has published guidance[1] on its supervisory approach to financial promotion in social media.

The guidance can be interpreted as the continuation of a journey that began with the Financial Services Authority (FSA) initiating a review into financial promotions on social media in 2010. It was stated from the outset that the regulations[2] that apply to financial promotions apply universally regardless of the medium employed.  However this presented significant challenges to institutions and firms due to the differences between traditional models of media advertising that previous interpretations of the rules were based on, and the new models of advertising that have been introduced since the emergence of social media.

In particular the challenges of social media that constrain users through character limitations, such as twitter, have been perceived by some firms to be incompatible with complying with financial promotions regulations. In order to overcome these challenges a period of consultation with industry stakeholders was initiated in August 2014[3] that produced the finalised guidance in March 2015. The guidance aims to not only safeguard consumers from frivolous financial promotions, but also seeks to empower firms who perceive social media advertising  to be non-compliant with the FCA rules and to open up the positive benefits of social media. 

Firstly the guidance clarifies the position from the outset of what constitutes a “financial promotion”. It states that “any form of communication is capable of being a financial promotion, depending on whether it includes an invitation or inducement to engage in financial activity as defined in s.21 FSMA.” This includes “advergames” where promotional messages are placed in entertainment applications.  To constitute a financial promotion for the purposes of the rules, the promotion must also be made in the course of business which requires a commercial interest on the part of the communicator. Once it has been established that the communication constitutes a financial promotion, it is subject to the same requirements as TV, radio, billboard advertisements etc. in order to ensure compliance with the rules. However the guidance provides further guidance on issues that are specific to social media;

Under Principle 7[4] of the Principles for Businesses, all communications must be clear, fair and not misleading.  Firms are advised to take account of the probability that communications through social media can reach a much wider (and unintended) audience than perhaps originally anticipated when deciding to promote their products through social media. Therefore firms should ensure that their original communication complies with principle 7 and it is recommend that firms manage this risk through use of software that accurately targets particular groups.  

The guidance also revised a previous recommendation by the FCA that was included in the consultative guidance by stating that hashtags are not an appropriate way to signpost promotional content. In relation to “retweeting” a customer’s “tweet”, it will depend on the content of the tweet when deciding if it constitutes a financial promotion. Retweeting a customer tweet expressing satisfaction with a service will not constitute a financial promotion as it is not included within the definition provided in the FSMA Financial Promotions (Exemptions) Order 2005. However if the tweet comments on or endorses the benefits of a regulated financial product or service, then this will constitute a promotion by the firm.

 Firms should also consider the appropriateness of character-limited media when promoting complex features of financial products or services. Importantly, the presence of a link to more comprehensive information does not relieve the firm of ensuring the promotion is compliant in itself.  In order to circumvent this issue, the guidance suggests employing “image advertising” as a more appropriate method of ensuring that the required information is communicated to consumers without the constraints of character limitation. The requirement to include risk warnings or other statements in promotions for certain products/services raises another significant challenge for the use of character-limited social media. In this regard, the guidance recommends inserting infographics into communications and therefore enabling relatively unrestricted information to be presented to the consumer.

Regarding unsolicited promotions, a tweet will not constitute a real time promotion and therefore falls outside the ambit of the relevant rules.

However it is important that organisations wishing to follow up promotions in social media with real time promotions are aware that being a “follower” or “liking a page” does not constitute an established client relationship or an express request and will therefore be considered an unsolicited real time promotion.

Aside from the practical application of the guidance, institutions will also have additional governance requirements that will increase their risk management responsibilities. The FCA recommends that firms should have an appropriately senior staff member responsible for its systems to ensure that all communications are compliant with FCA rules. Firms must also be able to produce adequate records of significant communications.

To further support firms engaging in financial promotions the FCA will soon produce a discussion paper that outlines how the industry can work collaboratively to exploit social media to benefit the consumer.

Watch this space!

The FCA guidance is available here: http://www.fca.org.uk/news/fg15-04-social-media-and-customer-communications.

For more information or discuss any of the issues raised in this article please contact Olivia O'Kane

[1] Financial Conduct Authority;FG15/4: Social media and customer communications: “The FCA’s supervisory approach to financial promotions in social media” March 2015 (available at https://www.fca.org.uk/static/documents/finalised-guidance/fg15-04.pdf)

[2] S.21 Financial Services and Market Act 2000 (available at http://www.legislation.gov.uk/ukpga/2000/8/section/21) and The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (available at http://www.legislation.gov.uk/uksi/2005/1529/contents/made)

[3] Guidance Consultation; Social media and customer communications: “The FCA’s supervisory approach to financial promotions in social media” August 2014 (available at https://www.fca.org.uk/static/documents/guidance-consultations/gc14-06.pdf)

[4] “Principle 7 Principles for Businesses” FCA Handbook (available at http://www.fca.org.uk/static/documents/handbook-releases/high-level-standards136.pdf)