Social Media is defined in the Oxford Dictionary as “websites and applications that enable users to create and share content or participate in social networking”.
There are 7.7 billion people in the world, of which over half (4.2 billion) have at least one social media account, demonstrating the social and demographic development that has taken place since inception in the early 2000s. Most people are aware of the big social media sites – Facebook, Twitter, LinkedIn, YouTube and Instagram. But not everyone is aware that there are rules around the use of social media in financial services.
The FCA released specific guidance around how firms should use Social Media – FG15/4 Social media and customer communications: The FCA’s supervisory approach to financial promotions in social media was issued in March 2015 and provides detailed guidance around how firm’s should use Social Media. This newsletter provides a timely reminder of the key points.
Social Media and Financial Promotions
Firms engaging in Social Media must consider whether the content they post should be classed as a financial promotion. The FCA suggests that any form of communication has the potential to be a financial promotion, and therefore the standard rules around financial promotions apply. The FCA defines a financial promotion as:
“an invitation or inducement to engage in investment activity or to engage in claims management activity that is communicated in the course of business” (FCA Glossary)
Firms should therefore consider whether the content they post falls within the definition above and, if so, ensure that any content is compliant with the rules relating to financial promotions.
Firms should also be aware that anyone who is widely associated with the firm and who posts content using their own personal account, might still be considered as having posted a financial promotion. Firms need a process to manage that risk.
Stand Alone Compliance
All financial promotions, digital or otherwise, need to be compliant in their own right with all applicable rules. The most important rule is that financial promotions must be ‘clear, fair and not misleading’ (FCA Principle 7). Essentially, this means that all communications should be balanced, and provide details of any potential risks associated with the promotion as well as the advantages. Firms should be aware that some products will require product-specific risk warnings.
Where performance is referenced, this should be in line with the past performance rules which include detailing previous performance over the previous 5 years, and including the source and basis of the data. Of course, the past performance caveat must also be included, with ‘equal prominence’. The full rules around quoting investment performance can be found in the COBS 4.6.2 of the FCA Handbook.
Achieving all this within one promotion may be a challenge, given that there are size limits on some forms of social media posts, for example the 280 character limit on Twitter. The FCA recognises the challenge and suggests that signposting to more comprehensive information may be appropriate, provided that the initial promotion itself remains compliant.
The FCA also expects that financial promotions will be obvious to the reader as being a financial promotion. If it is not clear from the content, the firm should explicitly state that the post is a financial promotion.
Image advertising is intended to create a favourable mental picture of the product in the mind of the customer. An attempt is made to associate the product/service with certain values rather than to promote any specific product or service. Firms could choose to use image advertising, particularly where financial promotions are restricted by character limits.
FG15/04 provides guidance on how different products interact with the COBS rules:
- For investments, image advertising is exempt from most of the detailed financial promotions rules and guidance in COBS 4, but it will still need to comply with the high-level ‘clear, fair and not misleading’ rule;
- For mortgages, MCOB 3 contains a specific exemption for financial promotions that comply with MCOB 3.2.5R;
- For insurance and banking, there is no equivalent provision for image advertising in ICOBS 2 or BCOBS 2 and firms cannot rely on exemptions;
- For credit products, CONC 3 applies only to a limited extent to financial promotions or communications falling within CONC 3.1.7R and that comply with the parts of CONC 3 set out in that rule.
Responsibility of forwarding and sharing content
Typically, the responsibility for a financial promotion lies with the firm that posts it. However, when a financial promotion is forwarded or shared by another firm, responsibility can pass to the firm that shared or forwarded the promotion.
Approval and Record Keeping
The guidance outlines that firms should have an adequate system in place to sign off digital communications, with sign-off coming from an individual who has the appropriate competence and seniority to do so. Firms are also expected to keep a record of all financial promotions which includes online promotions.