Social media is a powerful marketing tool, and influencers are the name of the game. The best influencers on Instagram and TikTok earn millions. Regulated financial institutions and scammers deploy influencers to chase after clients and victims, respectively. Lately, the UK Financial Conduct Authority (FCA) has taken action against Freetrade (www.freetrade.io) and ordered the regulated broker to remove all paid-for sponsored influencer advertisements and posts across all social media platforms, including without limitation Instagram, TikTok, Facebook, and YouTube.
The TikTok case
Established in 2016, Freetrade is a UK-based fintech providing commission-free stock trading, regulated by the FCA. The company offers a trading app and works extensively with influencers on TikTok and Instagram to acquire new customers. The FCA takes a critical view of this.
The FCA issued two Supervisory Notices, concluding that Freetrade breached conduct rules by failing to consider the extent to which vulnerable customers might make decisions based on social media influencer recommendations. In particular, the regulator was concerned about an influencer with over 64,000 followers on TikTok that included information about how she was paying off £38,000 in debt and did pay off £14,000 in 18 weeks. This influencer promoted Freetrade via sponsored TikTok videos.
The FCA considers that the influencer’s financial promotion video, viewed in the context of her profile, may lead viewers to believe that if they invest with Freetrade, they will clear their debt, encouraging them to invest at Freetrade. The regulator said that it considers this to be misleading as there are no guarantees of positive returns on any investment, which may further exacerbate the financial position of those already in debt. The FCA also said that, although the video included a risk warning, the risk disclosure to be insufficient, the promotion misleading, and the influencer’s financial promotion to therefore be in breach of conduct rules.
The FCA also discovered a TikTok video posted to an Instagram story on the influencer’s profile, promoting the benefits of using the Freetrade to engage in investment business but does not include the required risk disclosure.
In a response to the FCA, Freetrade stated that it did not approve the TikTok influencer’s financial promotion. However, they provided no evidence to support this claim but even if it did not, Freetrade should have had appropriate oversight of the influencer’s promotion.
In essence, the FCA‘s Supervisory Notices mean that influencer marketing of financial services is also subject to FCA oversight and therefore firms like Freetrade must have control over and be responsible for their influencers.