What is it?
Finfluencing is where social media influencers (or “finfluencers”) promote financial products or services to their followers via their social media platforms. Often, but not always, these are unregulated and high-risk products.
The Criminal/Regulatory Risk?
Recently, Logan Paul has been accused of misleading fans over cryptocurrency investments and faces allegations that he may have promoted investments without revealing that he had a financial interest in them. He denies wrongdoing and has sent legal letters to various media outlets including the BBC.
So what are the risks for finfluencers?
There are two major risks, criminal and reputational. In order to understand and prevent risks, both the criminal and reputational risks need to be considered.
The Criminal Risk
It is a criminal offence to run an unauthorised investment scheme and to issue unauthorised communications of financial promotions and recently we have seen the Financial Conduct Authority (FCA) step up its response and investigate cases of finfluencing. The FCA are currently bringing the first ever prosecution of finfluencers in such circumstances.
The FCA issued Guidance in March 2024 that warned finfluencers that they may be in breach of the Financial Promotion Restriction, which prevents unauthorised persons from communicating financial promotions unless they are exempt or the content of the promotion has been approved by an authorised person. The Guidance also encouraged finfluencers to consider whether they are the right person to promote a financial product or service and provided detailed guidance as to when they may be at risk of illegal communication of financial promotions.
The Reputational Risk
Social media influencers are nothing new. They draw on the principal that their followers will buy products that come with the endorsement of those they trust and emulate. There are many benefits for the celebrity and the brand but there are also reputational risks. Problems arise when the influencer is ‘off message’ or the brand gets into trouble. It is also easy for rules around advertising to be breached if influencers have not obtained appropriate legal advice.
The reputational risks around finfluencing are more serious because there may be criminal sanctions in the event of breaches of the rules and regulations. Those caught finfluencing can find themselves under criminal investigation, which is reputationally damaging and impacts on their ability to work with other brands.
In order to send a clear signal that finfluencing is being taken seriously, the FCA is actively promoting details of ongoing prosecutions. In May 2004, the FCA named nine individuals who had been charged in relation to an unauthorised foreign exchange trading scheme which was promoted on social media. Those individuals included high-profile stars in the reality television world. If convicted, they can face up to two years in prison, but even if not convicted, the damage of being linked to unauthorised trading could have serious and long-lasting reputational harm and loss of earnings as influencers for other brands.
Conclusion
The messages is clear, social media influencers need to be wary if they promote financial products. The FCA have sent a clear message that it will take action where it considers there has been unlawful promotion of financial products and services.
For further information, please contact Hanna Basha, in the Privacy and Media department or Mark Jones in the Defence and Investigations department. Alternatively, telephone on 020 3911 2083
