In a recent high-profile case, the UK Financial Conduct Authority (FCA) has charged nine individuals, commonly dubbed as “finfluencers,” with promoting an unauthorised foreign exchange trading scheme through social media platforms. The defendants, including famous names like Emmanuel Nwanze and Holly Thompson, both former Love Island contestants, are accused of running an Instagram account that issued unauthorised financial promotions.
They then paid other influencers such as Rebecca Gormley, Jamie Clayton, and Biggs Chris; who are also former Love Island contestants to use their own Instagram accounts to promote their trading platform. But, the trouble has spread far away from the Love Island. The Only Way is Essex stars Lauren Goodger and Yazmin Oukhellou; plus Geordie Shore celebrity Scott Timlin also are alleged to have promoted the scheme.
The FCA’s charges include allegations of running an unauthorised investment scheme and conducting unauthorised financial promotions. This unauthorised promotion has brought significant attention to the legal ramifications of marketing high-risk financial products to consumers who lack a full understanding of the nature of the asset class and the risks involved.
An initial hearing took place in July 2024, however, the case will not be heard until 2027. This case exemplifies the regulatory body’s ongoing efforts to get to grips with new challenges and poor compliance standards in the sphere of social media influence.
Regulation of Financial Promotions
The legislation here is set out in the Financial Services and Markets Act 2000, which outlines the remit of financial regulators in the UK (including the Financial Conduct Authority). The act requires regulators to protect consumers in a manner which cognises differing degrees of risk involved in financial activities against consumers’ differing degrees of experience, expertise and financial literacy. In this analysis, the FCA may have found the promotion to be objectionable, however, this is not the principal basis for bringing legal action.
Legislation also requires those who engage in the promotion of financial services to be authorised to do so.
There is a distinction/exclusion that covers the discussion of financial topics in newspapers, magazines, and similar publications. This requires the primary function of the publication to be informative rather than specifically encouraging or enabling individuals to buy or sell particular assets, or borrow money. In short, producing content to promote financial products without permission is illegal. However, where do explicit adverts stand in terms of the regulation?
Advertisements are subject to restrictions too. Advertisements or other promotional material require the input and approval of an approved person (a part 4A approval as per the Financial Services and Markets Act 2000). An approved person (individual or corporate body) who has Financial Conduct Authority permission may engage in or approve financial promotion. However, it is an offence to undertake financial promotion when not approved and authorised to do so.
The FCA argues that by promoting Contracts for Difference via Instagram, there has been a breach of the regulation preventing unauthorised persons from carrying out regulated activities in the UK.
What where they promoting?: Understanding CFDs
Contracts for Difference (CFDs) are financial derivatives that allow traders to speculate on the price movements of various assets, such as stocks, commodities, currencies, and indices, without actually owning the underlying assets.
When trading CFDs, investors agree to exchange the difference in the asset’s price from when the contract is opened to when it is closed. This type of trading is often on margin (leveraged), meaning traders can control a larger position with a smaller initial investment, which can amplify both potential profits and losses. CFDs provide flexibility in accessing global markets but come with significant risks due to market volatility and leverage.
CFDs are complex and high-risk instruments. Promoting them to a broad audience, particularly through platforms like Instagram, can mislead inexperienced investors who may not fully understand the risks involved.
Conclusion
The recent charges against these finfluencers for unauthorised promotion of financial products on social media highlights the dangers of relying on influencers for financial advice as there is little guarantee that information is fair, clear, and not misleading. Basic warnings of the risks involved are often found to be lacking. This case underscores the importance of consumer protection in financial markets, particularly on platforms where content often blends personal opinion with promotional material.
Contracts for Difference (CFDs), in particular, are complex and risky financial instruments that are not suitable for all investors, especially those who are inexperienced or not confident with derivative instruments. Social media users should exercise caution and conduct thorough independent research before investing based on online endorsements.
Dr Michael Harrison – Senior Lecturer in Economics & Finance – University of East London