Insights and News /

29 October 2014

Electronic Financial Promotions Pitfalls

In the early years of social media, most organisations struggled to expand their communication and distribution channels to capitalise on this new and exciting platform. Ten years later if you’re not ‘talking’, promoting or selling to customers (at least partially) using a social media platform then potentially you’ve already lost irrecoverable market share. 

If your company sells mugs plastered with pictures of cats or you provide services to the travelling circus industry then the world is your oyster (if only in terms of social media engagement). These organisations are unrestricted, unregulated and in some cases altogether unfounded... however, if your organisation offers a product or service of a financial nature, there is a good chance that you may be already breaking some of the rules.

The FCA has recognised the potentially systemic failure across the industry and recently launched a consultation with the intention to clarify the approach it is taking to supervise financial promotions using social media. Financial services is such a competitive environment that banks, insurers, investment managers and intermediaries have embraced social media as a method of engaging with highly targeted affinity groups in order to increase their engagement success rates. The emerging risk area is when these organisations fail to adhere and comply with the strict financial promotion rules imposed by the FCA.

Two of the main issues revolve around: 1) the perceived transient nature of social media communication and 2) the limited form and format available to communicate all the required information via social media.

Just how temporary are social media messages? If you don’t suffer from IAD (Internet Addiction Disorder... that’s right, it is an official condition!) there is a good chance that you miss tens or even hundreds of tweets, as the pure volume of messages flying your way are too vast for you to read them all.  A problematic and emerging convention is the perception that individual social media messages are impermanent and hence don’t need to be given as much thought or control as messages on a more enduring medium.

Social media messages aren’t suggestions, they aren’t thoughts and they aren’t opinions... they are statements. Statements of fact or fiction it doesn’t matter, but once you have made that statement you can’t take it back. In recent years, social media messages have been the cause of some high profile libel suits, however, fortunately for some firms, the regulator has yet to hand out a fine for inappropriate financial promotion via social media means.

The second challenge in using social media for promotional purposes is the often restrictive character count and the difficulty in including the necessary risk warnings required by the regulator to inform the customer in a in a fair and balanced way. An investigation by the regulator into general internet advertising found that 25 per cent of the adverts reviewed were difficult for consumers to navigate and failed to signpost key information.

Companies are increasingly using links, images or ‘#ad’ as a means of providing the necessary warnings to customers, however without clear guidance from the regulator this is an area that will continue to expose financial services companies to potential regulatory enforcement.

While this remains uncertain ground there are mechanisms and controls that companies can put in place to ensure they don’t fall foul of regulatory expectations:

  1. Implement a clear social media marketing policy
  2. Train marketing and communications staff on their obligations for ensuring compliant financial promotions
  3. Educate general staff about what they can and cannot do in the company’s name via social media
  4. Ensure distributors and outsource service providers have clear mandates for promoting the company’s products and services
  5. Employ a monitoring and testing programme to ensure continuing adherence to the policy

In the new world of effective conduct risk management firms must consider not only the message that they are putting out into the world but more importantly how that message is being received. “But that’s not what we meant” just isn’t going to fly when you’re under the regulatory microscope staring down the barrel of a potentially large fine.