Beware Finfluencers!
21 June 2024
The Financial Conduct Authority (FCA) has brought charges against nine “Finfluencers”, some of whom are known for their appearances on reality tv shows.
One individual has been charged with operating an unauthorised collective investment scheme (in breach of the “general prohibition” in Section 19 of the Financial Services and Markets Act 2000 (FSMA)) and issuing unauthorised financial promotions (in breach of Section 21 of the FSMA).
Together with another of the defendants, this individual used an Instagram account (the CFD Account) to provide advice on buying and selling contracts for difference (CFDs) without permission from the FCA to do so. The FCA’s view is that CFDs are a high-risk investment and investing in them may result in retail investors losing more than they invested (in its press release on these charges the FCA mentions that 80% of customers lose money investing in CFDs because of the risks).
The FCA also alleges that a number of reality television personalities were used to promote the CFD Account through their own Instagram accounts to their millions of followers (in total, 4.5 million). These individuals are being charged with issuing unauthorised financial promotions.
The FCA’s recent guidance on financial promotions on social media
The charges follow the FCA’s very recent finalised guidance on financial promotions on social media (FG24/1) released in March 2024. In the guidance, the FCA makes clear that: “Unauthorised persons, such as influencers, who promote financial products or services that are subject to regulation without the approval of an FCA authorised person may be committing a criminal offence.”
The guidance makes clear that under Section 21 of the FSMA, a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity (the financial promotion restriction). The financial promotion restriction does not apply if the promotion is communicated by an authorised person, approved by an authorised person (who has permission to do so) or an exemption in the FSMA (Financial Promotion) Order 2005 applies. The FCA further highlights in the guidance that a breach of the financial promotion restriction is a criminal offence, punishable by up to two years’ imprisonment, the imposition of an unlimited fine or both.
Finally, the FCA confirms in the guidance that: “An illegal financial promotion is one communicated in breach of s21. For example, an (unauthorised) influencer communicating a financial promotion without approval from an appropriate authorised person and where no FPO exemption applies.”
The Birketts view
This is the first time that the FCA has brought charges against influencers for breaches of FSMA and follows multiple publications from the FCA warning influencers not to breach (in particular) the restriction on financial promotions. These latest charges show users of social media (particularly those with large followings) that the FCA will take action (including against those in the public eye, if necessary) and that these are not empty threats.
It appears that the FCA intends to make an example of these individuals in an effort to stop the widespread posting of unauthorised financial promotions on social media.
What next?
On 13 June three of the individuals issued pleas of “not guilty”, while another three did not indicate pleas. A trial preparation hearing is to take place for these six defendants on 11 July. A further hearing dealing with the remaining defendants is to take place on 3 July. It is interesting to note that some of the defendants appear to intend to defend their position and it remains to be seen what case they will put to the FCA (as it does not appear that the communications were made or approved by an authorised person, or that an exemption applied).
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at June 2024.