FCA slams Freetrade for misleading social media promotions
Investment firm Freetrade Ltd has gotten under fire for misleading financial promotions on social media. The UK Financial Conduct Authority (FCA) has issued a notice to the firm, finding that the firm has breached the Authority’s Conduct of Business Sourcebook (COBS) rules that state that all financial promotions issued or approved by a firm must be “fair, clear and not misleading”.
The FCA first wrote to Freetrade on 6 March 2020, when it expressed concerns with some of the financial promotions issued by the firm which the Authority considered were non-compliant with applicable financial promotion rules.
In particular, Freetrade’s social media promotions (Instagram, Twitter and Facebook) did not mention the required warnings in relation to risks to clients’ capital and were consequently in breach of COBS 4.2.1R and COBS 4.5.2R(2). For example, the ISA landing page did not have a capital at risk warning whilst the statement that “Your customers are able to invest in a variety of asset classes such as stocks, Exchange Traded Funds, and bonds” did not provide a fair and prominent indication of any relevant risks when referencing potential benefits.
The Authority subsequently identified further financial promotions issued by the firm that appeared not to comply with the Authority’s rules and wrote to the Firm again about these breaches on 11 March 2021. The Firm’s financial promotion was coupled with the headline “invest with trust” and a tick. The Authority considered that this gave a misleading impression to consumers in relation to the extent of Authority’s approval and that it was being used to promote the Firm’s service breaching GEN 1.2.2AR.
As a result of the concerns identified, the Authority requested the Firm conduct a review of its advertising to ensure compliance with applicable rules. This included a review of:
- a. the full portfolio of current advertisements, and whether any were identified as having further instances of non-compliance;
- b. why non-compliant promotions were in circulation and an explanation for these failings;
- c. any actions taken as a result of the Authority’s previous correspondence in respect of financial promotions;
- d. systems and controls in respect of financial promotions;
- e. data on any action taken in relation to consumers who may have taken out a product having seen potentially misleading promotion(s).
Since the Authority’s communication with Freetrade in April 2021, the firm has “sponsored and partnered” with a social media influencer to promote the Firm’s commission free investments on the social media platforms TikTok and Instagram. The social media influencer mentions in their TikTok video they are “partnered with the Firm” and goes on to explain the use of the link to gain a “free” share.
To the extent that (i) there is a commercial partnership between the Firm and a social media influencer and (ii) the social media influencer operates within the scope of that agreement with the Firm, the Firm is responsible for ensuring the compliance with FCA rules of the influencer’s financial promotions that are relevant to the Firm’s business.
Communications through social media platforms can reach a wide audience very rapidly and risk being accessed by vulnerable customers. The FCA’s concerns relate to the type of consumers some of these social media influencer posts may have reached.
The social media influencer has a following in excess of 64,000 followers on TikTok, and her profile page on the TikTok platform predominantly includes information about how the influencer is paying off £38,000 of debt, having paid off £14,000 in 18 weeks. This influencer also has widespread media interest reporting on her story of “clearing her debt”.
The Authority therefore considers that her profile is one which vulnerable or indebted consumers could be particularly attracted to (alongside other audiences who are not vulnerable or indebted). 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 the Firm they will clear their debt, encouraging them to invest.
However, the FCA 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. Despite the inclusion of the capital at risk warning included in the TikTok promotion, the Authority considers the risk disclosure to be insufficient, the promotion misleading and the influencer’s financial promotion to therefore be in breach of COBS 4.2.1R.
In addition, the Authority has identified an Instagram promotion by the same social media influencer promoting the benefits of using Freetrade to engage in investment business but which does not include the required risk disclosure. COBS 4.5.2R (2) states that a firm must ensure that information does not emphasise any potential benefits of relevant business or a relevant investment without also giving a fair and prominent indication of any relevant risks.
The omission of a capital at risk warning contravenes this rule. The Authority maintains that the Firm did not have appropriate oversight of the influencer’s financial promotion which would have allowed the Firm to identify and request the removal of the TikTok video posted.
The further breaches of related financial promotion rules indicates to the FCA that Freetrade did not adequately amend its approach to approving and issuing financial promotions when it conducted its internal reviews. The previous breaches related to financial promotions originated and communicated by the Firm, and the Authority considers that the financial promotions communicated by paid for or sponsored influencers also breach the financial promotion rules.
The FCA has decided to impose the following Directions, pursuant to s137S of the Act with immediate effect:
- a. within 24 hours of the date of the notice remove all paid for sponsored influencer advertisements and posts across all social media platforms, including without limitation Instagram, TikTok, Facebook and YouTube; and
- b. confirm to the Authority that Freetrade has done so together with a list of all advertisements and posts removed.