'Influencing' gone too far?

We are all now well versed to the world of ‘influencing’, and it is almost expected that we will consume advertisements when scrolling on social media. Although the law is modernising to ensure influencing does not go too far, it was not that long ago that regulations changed to ensure anything an influencer posts as an incentivised advert is properly labelled as such.

Several well-known and popular reality tv influencers have, however, taken their influencing too far and found themselves charged with issuing unauthorised communications of financial promotions, under Section 21 of the Financial Services and Markets Act 2000 (FSMA). 

Section 21 of FSMA says that someone must not, in the course of business, communicate an invitation or inducement to engage in investment activity unless they are authorised by the Financial Conduct Authority (FCA), or the content of the communication is approved by an authorised person. 

To ‘engage in investment activity’ under Section 21 FSMA means:

1. to enter or offer to enter into an agreement the making or performance of which by either party constitutes a controlled activity; or
2. exercising any rights conferred by a controlled investment to acquire, dispose of, underwrite, or convert a controlled investment. 

An “activity” will be considered ‘controlled’ if it is of a specified kind or one which falls within a specified class of activity, and it relates to an investment of a specified kind, or one which falls within a specified class of investment. 

Unauthorised persons, such as social media influencers, who promote a regulated financial product or service without approval of an appropriate FCA authorised person, may be committing a criminal offence. 

The FCA warned earlier this year that they would be cracking down on financial influencers (finfluencers) if their posts were considered misleading, and guidance was published in March 2024 clarifying the expectations on how financial promotions should be communicated on social media. 

The March 2024 guidance says s that an illegal financial promotion is one communicated in breach of Section 21 FSMA and gives the example of an influencer communicating a financial promotion without approval from an authorised person. The FCA set out how adverts across social media channels must be fair, clear, and not misleading, and must also carry risk warnings so people can make informed financial decisions. 

Influencers were reminded of the potential criminal liability they could attract if they were found to be promoting a financial product without the proper authority. Lucy Castledine, Director of Consumer Investments at the FCA, was quoted in March 2024 saying ‘Promotions aren’t just about the likes, they’re about the law. We will take action against those touting financial products illegally’. 

Now, the FCA has taken that action and pursued their first prosecution for alleged financial promotion breaches of this sort. 

Emmanuel Nwanze and Holly Thompson have been charged by the FCA with running an unauthorised investment scheme and issuing unauthorised promotions through social media, between 19 May 2018 and 13 April 2021. Instagram accounts were used, without proper authorisation, to provide advice on buying and selling contracts for difference (“CFDs”) which are high risk investments used to bet on the price of an asset. 

The FCA has further alleged that several influencers, namely Biggs Chris, Jamie Clayton, Lauren Goodger, Rebecca Gormley, Yazmin Oukhellou, Scott Timlin and Eva Zapico, were paid by Nwanze and Thompson to promote those Instagram accounts to their collective 4.5 million followers. Unfortunately, but perhaps not surprisingly, 80% of the customers who invested in the CFDs have lost money.

So why is this so serious? 

The offences that this group of influencers have been charged with are punishable, upon conviction, by an unlimited fine and/or up to 2 years’ imprisonment! 

The influencers charged are due to appear at Westminster Magistrates Court on 13 June 2024 and the FCA has encouraged anyone who believes they have suffered a loss in relation to this matter to contact them.

It may be hard to imagine that these influencers could be sentenced to up to 2 years’ imprisonment for their posts on social media, but this is the reality that they are now facing after failing to follow the strict rules and regulations. 

Any influencer can communicate a financial promotion, and whether this communication falls within the scope of Section 21 FSMA will not based on the size of an influencer’s following, but whether they have complied with the law. 

The FCA have partnered with the Advertising Standards Authority (ASA) to create some guidance for influencers when they are approached with opportunities to promote financial products or services, to avoid ending up criminal territory. 

If you have any concerns or queries relating to financial promotions, contact Garon Anthony or Jeremy Ladyman at Irwin Mitchell to discuss.