Be Wary of Social Media – A Warning to Firms

 The FCA’s recent action against an online trading platform over social media messaging highlights the importance of ensuring all promotions are accurate, responsible and fair.

Earlier in the month it was reported that the FCA had told investment platform Freetrade to remove all paid for social media influencer posts after it used a social media influencer to suggest that their app could be a way out of debt.

Online trading apps, such as Freetrade, are becoming increasingly popular amongst young consumers who are drawn by the potential of high risk investments with the promise of high returns. At a time when conventional savings and investment platforms are bogged down with low interest rates and usually only modest returns, people are increasingly looking to higher risk mechanisms such as forex and the “wild west” environment of cryptocurrencies in order to generate a return.

Platforms like Freetrade and other fintech solutions can be attractive to such consumers as they make it easier to get into trading, and can offer a way to access higher returns. In marketing themselves, apps often turn to social media. Freetrade, for example, often uses two-for-one offers, and attempts to appeal to their audience on social media in order to spread their message.

Accurate and responsible information

As this case shows, firms have to be careful that such marketing messages always contain accurate and responsible information. In this instance, the FCA were worried by both the tone of the messaging and the influencer Freetrade had used. The influencer was, they said, someone who produced content about how she had made her way out of debt. As such, she was likely to be followed by people who were in debt or struggling financially themselves. The tone of the promotion also made it seem as if this was a good way for people in debt to make money.

This is not correct, said the FCA, as there is no guarantee that investors would see a return or even get their money back by using this platform. In a supervisory notice, the FCA said that all promotions must be fair, clear and not misleading in any way. The regulator concluded that Freetrade had breached these rules because it failed to consider the extent to which vulnerable customers might access the promotion which it had approved for use by the influencer.

The FCA stated in its notice:

“The authority considers that the promotions provide consumers with the impression that they could reduce debt by following the steps taken by the social media influencer and use the firm as a mechanism to make money.

However, the authority considers this to be misleading as there are no guarantees that any investment will result in positive gains in the short or long term. Consumers already in debt are likely to be particularly vulnerable to this.”

Proof of action

The regulator demanded that the platform remove all its paid-for social media influencer promotions and provide evidence that it had done so. This is not the first time it has warned Freetrade about its promotional activities on social media. It did so in 2020 and again in 2021. This provision can therefore be seen as a shot across the bows of fintech companies. Social media and influencers represent a popular form of promotion, especially for new or growing platforms. However, it can be difficult to control the messaging.

The FCA’s action in this case makes it clear that firms must do everything they can to ensure none of the promotions they sanction give ambiguous, confusing or potentially misleading information. Engaging influencers can be particularly difficult as their chosen tone, content or audience can all put companies at risk of contravening the regulations.