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The UK’s Financial Conduct Authority (FCA) has expressed concern over the growing influence of “finfluencers” on social media platforms. These influencers regularly promote various financial platforms and products, often with disastrous results for retail investors–prompting the regulator to propose new guidelines to safeguard consumers from “significant consumer harm”.

On Monday, the FCA kicked off a consultation period on the subject set to last eight weeks. The move signals a rigorous assessment of the financial marketing landscape on social media, underlining the pressing need for comprehensive regulation.

The Social Media Surge and the Rise of “Finfluencers”

Over the past few years, the number of internet personalities promoting various financial products and services has surged in recent years, leading to a significant rise in the impact of finfluencers on their followers’ financial decisions. The FCA noted that these influencers often lack understanding of the products they promote, leading to a slew of promotions that are either non-compliant or outright illegal.

“We’ve seen a growing number of ads falling short of the guidance we have in place to stop consumer harm,” said Lucy Castledine, director of consumer investments at the FCA. “For those touting products illegally, we will be taking action against you.”

A 2021 survey by the regulator found that nearly 60% of under-40s who invested in high-risk products based their decisions on social media posts and news.

In the past year alone, the FCA called for the amendment or removal of 8,582 promotions–a dramatic 14-fold increase from the previous year. These promotions often fall foul of the guidelines that the regulatory body implemented in 2015.

Crypto Crackdown: Friend Referrals and Memes under Scrutiny

As of October 8, the FCA plans to implement stricter regulations concerning digital assets, including the prohibition of incentives for crypto investments such as “refer a friend” bonuses. The initiative also includes mandatory clear risk warnings and a 24-hour cooling-off period for first-time investors, affording them the necessary time to consider their investment decisions.

This escalating finfluencer issue has led to the FCA considering extending its proposed rules to include commonly used promotion methods in the crypto community such as memes. Over the past year, crypto fraud losses in the UK have soared by 40% to £306 million.

Extending the Reach of Regulation

The new rules are set to apply not only to UK-based entities but also to non-UK companies whose financial promotions reach UK consumers. This would significantly impact large crypto exchanges based in other jurisdictions.

The FCA’s initiative comes at a time when the Online Safety Bill, which imposes a “duty of care” on large online platforms to protect users from scams, including investment fraud, is making its way through the House of Lords. This bill and the proposed regulatory changes from the FCA illustrate a unified effort to combat fraud and protect investors.

These changes are not without controversy, however. The regulator’s broader consumer duty regime, due to take effect later this month, has been met with criticism from financial service executives who warn it could trigger a wave of lawsuits and result in a substantial administrative burden. The FCA consultation on social media marketing will conclude on September 11, and the new guidance is expected to be finalized later in 2023.

As the influence of finfluencers grows, so too does the need for comprehensive regulation. By promoting financial products without adequate understanding, these influencers are putting their followers–and the broader financial market–at significant risk. The FCA’s new rules are a crucial step towards mitigating these risks and ensuring the safety of investors.

The forthcoming rules will likely redefine the responsibility of influencers in the finance sector, and their successful implementation could establish greater trust and security in online financial promotions.