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WARNING-Promotional Communication in Progress! The FCA’s take on New Social Media
On Friday, March 13th, the FCA released their much awaited rules around social media and customer communications. Of much debate as of late, the FCA’s new supervisory approach comes off of the back of a recent consultation that ended last year around social media and how crowdfunding platforms can reasonably expect to embody ‘clear, fair and not-misleading’ communication activities while still taking advantage of social media platforms such as twitter, facebook and other communication platforms.
The 20 page document begins with a reminder of how a social promotion is defined within the regulators context, namely ‘ any form of communication (including through social media) [can constitute] a financial promotion, depending on whether it includes an invitation or inducement to engage in financial activity’ (1.9) and provides guidance and rules around what a firm should consider when utilising social media. At the root of the FCA’s supervisory approach is the notion that any and all communication that can be deemed as a promotion be reflective not only of any benefits to a consumer, but must also address any relevant risk associated with the use of the product being promoted. With this in mind, of key note are rules and definitions around character-limited media and how to ensure that risks are being appropriately warned.
Ultimately the regulator is of the view that the firm ‘consider the appropriateness of character-limited media as a means of promoting complex features of financial products or services’ and that it is the responsibility of the firm to uphold all tenants of the ‘clear, fair and not misleading’ language lest they be penalized. The regulator makes clear that all communications that are viewed as a promotion must be considered on the merit of the communication, and are to be viewed as stand-alone compliant to rules. This is to say, communications need to be considered individually. (1.11)
Some interesting approaches to the character-limitation issue is the use of appropriate images or infographics as a way to convey required risk warnings, as suggested in Section 1.13. In this instance, the document suggests the use of an infographic or image that would convey required risk warnings, etc. The caveat to this is that certain media platforms do not allow for an image to be permanently visible, so a promotion cannot solely rely on an image to be the only indication of risk…thus making this a perhaps moot point.
With respect to communication responsibilities, many firms posited the concern that they could be responsible for all potential messaging, regardless of authorship. The FCA has made it clear that a firm will not be held responsible for communications, where the communication lies outside of the firm, ‘so a firm would not be held responsible for such activity.’ However, a firm should be aware that the moment they share, forward or ‘re-tweet’ any communications that could be deemed as a promotion, they would then be responsible for any non-compliant messaging.
Ultimately, every communication must ‘standalone’ and be compliant. Therefore, the ‘click-through’ option that had been previously suggested in the FCA consultation document last August has been struck down. This is due to the fact that such a solution would require compliance to be assessed at multiple points of communication, namely the social media communication and the website or link that the click-through led to, rather than the one initial communication. This has been deemed as non-compliant, and points to European Directives as a reasoning for the FCA’s inability to proceed with such a communication solution.
Another important strike-down was the use of hashtags as a potential warning signaler. Hashtags were viewed as an inappropriate way of identify promotional content, and that the inherent functionality of a hashtag would potentially lead to communications outside of the firms control or relevant to the intended promotions. As such, this has been struck down.
The document is rich with examples of what the FCA does and does not consider a compliant promotion, yet acknowledges that further discussion may be needed to ensure effective delivery of information to consumers. The FCA invites further inquiry as the regulator does note that the ever-changing landscape of new media may present new or unexpected issues with rules and how forms can remain compliant within a changing media landscape.
To learn more about the changing regulatory environment for Crowdfunding, be sure to check out our recent research seminar synopsis here.
The 20 page document begins with a reminder of how a social promotion is defined within the regulators context, namely ‘ any form of communication (including through social media) [can constitute] a financial promotion, depending on whether it includes an invitation or inducement to engage in financial activity’ (1.9) and provides guidance and rules around what a firm should consider when utilising social media. At the root of the FCA’s supervisory approach is the notion that any and all communication that can be deemed as a promotion be reflective not only of any benefits to a consumer, but must also address any relevant risk associated with the use of the product being promoted. With this in mind, of key note are rules and definitions around character-limited media and how to ensure that risks are being appropriately warned.
Ultimately the regulator is of the view that the firm ‘consider the appropriateness of character-limited media as a means of promoting complex features of financial products or services’ and that it is the responsibility of the firm to uphold all tenants of the ‘clear, fair and not misleading’ language lest they be penalized. The regulator makes clear that all communications that are viewed as a promotion must be considered on the merit of the communication, and are to be viewed as stand-alone compliant to rules. This is to say, communications need to be considered individually. (1.11)
Some interesting approaches to the character-limitation issue is the use of appropriate images or infographics as a way to convey required risk warnings, as suggested in Section 1.13. In this instance, the document suggests the use of an infographic or image that would convey required risk warnings, etc. The caveat to this is that certain media platforms do not allow for an image to be permanently visible, so a promotion cannot solely rely on an image to be the only indication of risk…thus making this a perhaps moot point.
With respect to communication responsibilities, many firms posited the concern that they could be responsible for all potential messaging, regardless of authorship. The FCA has made it clear that a firm will not be held responsible for communications, where the communication lies outside of the firm, ‘so a firm would not be held responsible for such activity.’ However, a firm should be aware that the moment they share, forward or ‘re-tweet’ any communications that could be deemed as a promotion, they would then be responsible for any non-compliant messaging.
Ultimately, every communication must ‘standalone’ and be compliant. Therefore, the ‘click-through’ option that had been previously suggested in the FCA consultation document last August has been struck down. This is due to the fact that such a solution would require compliance to be assessed at multiple points of communication, namely the social media communication and the website or link that the click-through led to, rather than the one initial communication. This has been deemed as non-compliant, and points to European Directives as a reasoning for the FCA’s inability to proceed with such a communication solution.
Another important strike-down was the use of hashtags as a potential warning signaler. Hashtags were viewed as an inappropriate way of identify promotional content, and that the inherent functionality of a hashtag would potentially lead to communications outside of the firms control or relevant to the intended promotions. As such, this has been struck down.
The document is rich with examples of what the FCA does and does not consider a compliant promotion, yet acknowledges that further discussion may be needed to ensure effective delivery of information to consumers. The FCA invites further inquiry as the regulator does note that the ever-changing landscape of new media may present new or unexpected issues with rules and how forms can remain compliant within a changing media landscape.
To learn more about the changing regulatory environment for Crowdfunding, be sure to check out our recent research seminar synopsis here.
