Listen to the Article: UK's Crackdown Plan on "Finfluencers" - A Peek Into the FCA's "Social Media Guidance" Revamp
As the internet keeps on marching forward, and as short videos and the rise of "influencers" sprinkle a pinch of chaos into the mix, we witness the birth of the enigmatic "finfluencers." The word is essentially a neologism, and it points at those who've managed to gather an army of followers. What's their mission? Well, it's all about rolling out the red carpet for financial products and services, like a parade of money-savvy cheerleaders. Among these finfluencers, quite a few are marching out the risky investments, including the likes of cryptocurrency, forex, and the thrilling CFDs.
But, the financial playground has always been fertile ground for scams and misinformation, and now we're tossing it all into the online realm where face-to-face accountability takes a backseat. The UK Financial Conduct Authority (FCA) has staged quite a few moves in July, to show they're determined to tighten the leash on social media, finfluencers, and cryptocurrencies.
UK: Putting the Brakes on Social Media, Finfluencers, and Crypto Investment
According to Fazzaco, the FCA unveiled a brand-spanking-new set of rules that'll come into play starting Oct 8, 2023. From that day onward, there will only be four approved ways to advertise crypto assets. The rest? Well, they're facing a harsh spotlight of illegitimacy, including the much-loved "refer-a-friend" bonuses.
Moreover, on July 17, the FCA dropped another note, echoing the rise of finfluencers and the creeping concern that consumers might fall prey to fiascos due to ill-advised endorsements. So, A little revamp is their plan. Public consultation on the "Social Media Guidance" is open until September 11, 2023.
Now rewind to this April: an Aussie finfluencer who goes by the moniker "ASX Wolf," previously warned by the Australian Securities and Investments Commission (ASIC), got slapped with a lawsuit in the Federal Court. The charge? Offering financial services sans an Australian Financial Services License (AFSL). Another finfluencer Gabriel Govinda, AKA "Fibonarchery," was accused of 23 charges, for intentionally spreading false information to drive up stock prices.
Why the Social Media Guidance Revamp Now?
In the July 17 press release, the FCA said that the "Social Media Guidance" revamp aims to update how we peddle financial stuff online. They're even mulling over the idea of extending their regulatory reach as social media is playing an expanding role in the finance game.
Back in 2015, FCA had actually already rolled out the FG15/4 social media playbook. While some of the key rules still hold, but it mostly centered around character-limited platforms like Twitter (which, by the way, has undergone a rebranding by Elon Musk and is now strutting as X.com), without reference to the use of influencers communicating financial promotions. Meanwhile, the internet has grown at a faster pace than imagined. Platforms like TikTok are replacing YouTube. So, social media has muscled its way into the financial marketing rodeo, and finfluencers are flooding the arena.
The consultation on the "Guidance" followed the crypto investing ban, and it is not just protecting consumers so they can have access to better information to make informed decisions, it is giving extra support to financial institutions, too, so that they can use social media in a more compliant way under the new regime.
Now keep one thing in mind, and that's actually pretty importnat, and that is as a guidance document instead of laws, the violation of it does not necessarily be construed as law-breaking. So, it looks like the FCA is not taking a hard bite on the increasingly rampant social media scams and misinformation like we expected.
With the New Crypto Investing Ban, Let's Bid Farewell to "Refer-A-Friend" Bonuses
Contrary to the non-enforcement of the "Guidance", the FCA dropped a bombshell on July 4th, 2023, with a notice that securely strapped all compliant crypto assets into the roller coaster of financial promotion regulations. This wasn't some casual reminder—it was the freshest legislation whipped up by the British government.
According to this notice, starting from October 8th, 2023, every company marketing crypto assets to UK consumers, yes, even international ones, must stick to the financial promotion regime. Think websites, apps, social media posts, and the online ad symphony. Brace yourself, because most (if not all) crypto asset companies catering to the UK retail clientele will be caught in the embrace of this regime.
Now, here's the kicker: After this legislation dances its way into effect, all crypto asset companies under its jurisdiction will have to obediently adhere to the four FCA-approved ways to advertise:
The promotion is communicated by an authorised person.
The promotion is made by an unauthorised person but approved by an authorised person.
The promotion is communicated by a cryptoasset business registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
The promotion otherwise complies with the conditions of an exemption in The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 ("the Financial Promotion Order).
In addition, companies need to make it crystal clear that the crypto investment is highly risky. They're required to put up risk warnings give first time investors a 24-hour cool-down period before they make up their mind. These measures are similar to FCA's stance on other asset investments, like CFDs.
Back in August 2022, FCA had thrown down the gauntlet with a slew of new rules aimed at high-risk investment products that wink at retail investors. The grand unveiling included clear risk warnings and a "refer-a-friend" ban. But cryptocurrencies weren't on that list back then, since the government and parliament were still in the process of confirming the way to bring crypto marketing into the FCA's remit.
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