The UK financial watchdog wants to clarify how it controls the way financial and investment firms promote their wares on social media – provoking a mixed reaction from the industry.

The UK financial watchdog wants to clarify how it controls the way financial and investment firms promote their wares on social media – provoking a mixed reaction from the industry.

With platforms such as Facebook and Twitter increasingly a staple part of business as well as social life, the Financial Conduct Authority said it wants to set out how this fast-growing field should be supervised to prevent possible abuses.

“The FCA sees positive benefit from using social media but there has to be an element of compliance. Primarily, what firms do on social media must ensure customers are at the heart of their business,” Clive Adamson, director of supervision at the FCA, said in a statement yesterday.

The significance of social media can be underlined by some statistics: In 2025, the Generation Y cohort that is well used to these channels will hold 46 per cent of wealth in the US. McKinsey, the consultants, have reported that social media can unlock a collective £772 billion ($1.3 billion) in value for business – about the same size as the GDP of Spain. (Source: Social Media Charter.)

Adamson continued: “Our overall approach is that financial promotions, whether on social media or traditional media, should be fair, clear and not misleading. We have had extensive industry engagement on this issue and we believe our guidance is a sensible approach that doesn’t affect industry’s ability to innovate using new forms of media.”

The FCA said its overall approach is that the financial promotion rules should be “media-neutral” to ensure consumers are presented with certain minimum information, in a “fair and balanced way”, at the outset of firms’ interaction with them. The FCA insisted it does not want to stop the use of social media by financial firms.

The consultation examines promotions of financial products; the fact that each communication (such as tweet or Facebook insertion) must be considered individually, and risk warnings and other required statements. It also looks at “image advertising”, where the FCA reminds firms that they can advertise their presence in the market in a way which is unlikely to present difficulties with character limits.

The consultation closes on 6 November 2014.

Bovill, a consultancy on financial rule compliance issues, says the FCA consultancy will add to, not reduce, confusion about how firms can promote their wares.

“Crowdfunding platforms and other financial services firms have been left completely in the dark until now about how they should use social media to market their investments,” Gillian Roche-Saunders, head of venture finance at Bovill, said in a statement.

“Firms have been forced to apply out-of-date guidance that was intended for traditional adverts to promotions on social media that reach consumers directly and create new challenges like keeping a promotion to 140 characters,” she said.

“It is good to see the FCA grappling with the challenges of firms of communicating with younger audiences through social media, but today’s guidance from the FCA does not go far enough. The lack of detailed proposals is likely to lead to confusion among firms and inconsistencies on how they apply the rules,” she said.

Bovill said the FCA has not provided enough specific guidance to firms on issues such as the prominence of risk warnings; how single tweets can be “standalone compliant”, which means complying with all the financial promotion rules without any additional material, like extra tweets or a link to more information. Bovill said new rules would leave firms just 40 characters to describe their product for the tweet to be fully compliant.

A group called the Social Media Charter, created in 2013 between the FCA and 15 large financial services firms, welcomed yesterday’s move, however. Kitty Parry, its chief executive and founder, said: “We wholeheartedly support the FCA’s mission to ensure firms can function in this space, and the charter takes this one step further by setting the standard for excellence in compliant social media. With world-class legal training and listening developed by our barristers and social media experts, firms can ensure data capture for product innovation.”