The FCA has published a Second Supervisory Notice against Freetrade Limited on the 8 February 2022 (the Notice), which requires Freetrade to remove all paid-for social media promotions and all existing paid-for promotions from its social media channels, citing concerns about its connection with a well-known personal finance influencer on social media.
Supervisory Notice
Freetrade Limited (Freetrade), which provides customers an investment trading mobile application, is authorised by the FCA with various permissions including dealing in and arranging investment business. The Notice follows the FCA’s previous warning in December 2021, where it instructed Freetrade to delete all of its paid-for influencer posts “across all social media platforms” within 24 hours.
In issuing the Notice, the FCA cited Freetrade’s failure to comply with its obligations under Chapter 4 of the FCA’s Conduct of Business Sourcebook (COBS), which states all financial promotions issued or approved by a firm must be “fair, clear and not misleading” (COBS 4.2.1R).
In particular, the FCA highlighted two posts by an unnamed influencer followed by more than 64,000 people on TikTok. She was sponsored by and published some videos that promoted Freetrade. The FCA held her to be a partner of Freetrade, given the TikTok video mentioned she was “partnered with Freetrade”.
In reaching its conclusion, the FCA stated that the promotions provide consumers with the impression that they could reduce debt by following the steps taken by the social media influencer and use the Freetade application as a way to make money. One video broke FCA rules by not including a “capital at risk” warning. Another video posted to an Instagram story on the influencer’s profile promoted the benefits of using the Freetrade but without the required risk disclosure which was in breach of COBS 4.5.2R(2).
The FCA was particularly concerned that Freetrade and the influencer may have impacted already “vulnerable or indebted consumers”, as consumers already in debt are likely to be particularly vulnerable to promotions relating to ‘quick-fix’ reductions in personal debt.
FCA’s Increased Focus on Social Media Promotions
The FCA’s censure of Freetrade is indicative of a wider commitment to crack-down on misleading financial promotions in the online advertising space, particularly ones which pose high risk to young, inexperienced investors.
On 19 January 2022, the FCA published its Consultation Paper (CP 22/2), in which it proposes to significantly strengthen the rules on the promotion of high-risk financial products.
This Consultation Paper forms part of the FCA's Consumer Investments Strategy, published in September 2021, which aims to reduce the number of consumers who are investing in high-risk products that are not aligned to their needs.
As part of this strategy, the FCA launched its GBP11 million InvestSmart campaign, together with its first ever TikTok video and Instagram live session in October 2021, targeting its ‘don’t get played’ message at younger, higher-risk investors.
It is expected that the FCA may issue more Supervisory Notices to firms which flout the financial promotion rules in the social media space going forward.
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