UK’s FCA Chases Meme Coin Influencers on Compliance Demands

2024-04-09, 06:51

[TL; DR]

Meme coin influencers should promote crypto products within the legal provisions of the UK government.

Finfluencers who go against the UK’s legal provisions regarding the promotion of financial products may spend up to 2 years in prison.

Non-UK financial influencers who aim to advertise financial products to United Kingdom residents should use material that is approved by an FCA agent.

Introduction

Since their introduction memecoins have been very popular among crypto investors and have attracted much crypto investments. Although many investors have benefitted from their high volatility others have incurred heavy losses.

The fact that meme coins have the support of influential people like celebrities has made them a prime investable crypto asset class. Nonetheless, the risks they pose have forced several governments to intervene to protect their citizens.

This post will discuss UK’s recently promulgated law that aims to protect consumers from improper financial promotions. We will also look at specific guidelines that may help fin tech businesses and crypto influencers to comply with the new regulations.

FCA’s Warning to Social Media Influencers

The United Kingdom Financial Conduct Authority (FCA) has brought the crypto sector under its purview in terms of financial promotions. The UK social media financial promotions rules will apply to the cryptocurrency sector as well. As a result, financial influencers (Finfluencers) and crypto firms should abide by these regulations.

Due to the recent regulatory development in the United Kingdom social media the FCA will monitor the activities of crypto influencers to ensure they comply with the scope of financial advertisements legality UK.

The new financial product promotion guidelines have been introduced to regulate crypto advertisements that firms and influencers make on various media platforms which include Telegram, Tiktok, Facebook and X.com.

The FCA warning meme coin influencers is a result of the rise of deceptive online advice as well as the rampant endorsements of popular crypto memes by celebrities and other influential individuals. It is in view of such a development that the FCA calls for consumer protection financial adverts that contain fair and non-deceptive information.

Basically, the regulator is worried about the rise in poor-quality of financial promotions which may harm consumers who become enticed to make wrong investment decisions. In most cases, financial influencers use social media promotion to target younger audiences and other individuals who are vulnerable to high-risk investments.

According to FCA a financial promotion is a communication that contains an inducement or invitation to acquire or dispose of assets or convert rights under a controlled investment. The communication can be in the form of presentations through seminars, webinars, website pages or emails.

Concerning this the Financial Conduct Authoring said, “Under section 21 (s21) of the Financial Services and Markets Act 2000 (FSMA), a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity. This is known as the financial promotion restriction.”

However, the financial promotion restrictions will not apply under the following conditions.

“The promotion is communicated by an authorised person
The content of the promotion is approved by an appropriate authorised person or
An exemption in the Financial Services and Markets Act 2000.”

The FCA aims to ensure that there is compliance financial advertisements UK due to the dangers of uncontrolled promotions. To make matters worse, influencers and firms are using various social media advertisements to reach many people. For example, they use gaming streams, memes and reels to influence many unsuspecting individuals to make unwarranted investment decisions.

Having said the above, the FCA’s core message is that social media influencers in UK law, whether using short-form video, memes, or gaming streams, should follow advertising standards UK.

As per a statement in a Fintech Global publication, Lucy Castledine, director of consumer investments at the FCA, said, “Any marketing for financial products must be fair, clear and not misleading so consumers can invest, save or borrow with confidence.”

She added, “Promotions aren’t just about the likes, they’re about the law. We will take action against those touting financial products illegally.”

Therefore, to be legally safe, the finfluencers should only use FCA-authorized financial promotions. As per the FCA guidelines: “An illegal financial promotion is one communicated in breach of s21. For example, an (unauthorised) influencer communicating a financial promotion without approval from an appropriate authorised person and where no FPO exemption applies.”

This warning also applies to non-UK finfluencers who target the United Kingdom citizens. In this context, the guideline states, “The financial promotion restriction has a broad territorial application. It applies even where a communication originates outside the UK if it is capable of having an effect in the UK.”

Legal Implications for Non-Compliant Influencers

The FCA has made it clear that promoting financial products without approval from an FCA-authorised agency is a criminal act whose penalty includes a prison sentence. According to the financial promotion guidelines only authorized persons can advertise financial products.

Meme coins advertising legal risks in UK include prison sentences or financial penalties with no upper limit. As a fact, the gazetted maximum meme coin influencers prison time is 2 years. However, there is no upper limit on the financial penalty. Pertaining to this the FCA clarified: “A breach of s21 is a criminal offence which is punishable by up to 2 years imprisonment, the imposition of an unlimited fine, or both.”

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Role of Social Media in Financial Promotions

Many financial institutions use social media channels to broadcast their promotions in order to reach many people. In particular, crypto firms target social media users because most of them are the younger generation that is interested in digital assets and high-return investments.

Therefore, social media promotions appeal to the younger people and new investors the most. Also, firms use finfluencers who often have large numbers of followers who listen to them. Since cryptocurrencies are borderless it makes much sense to use social media platforms which appeal to people from around the world.

Basically, social media is a critical component of how people interact globally. Also, individuals and organizations that aim to get certain information use social media platforms and connect with like-minded people.

In addition to this, crypto projects can create communities on social media platforms like Discord, Facebook and Telegram, making it easy to advertise their products and reach a large population.

FCA’s Effort to Protect Consumers

It is clear that the main aim of the FCA is to protect consumers from the lure of high risk investments especially cryptocurrencies and other digital assets. The regulator has realized that there are many finfluencers who are giving investors misleading information.

In a statement quoted by Telegraph, Susannah Streeter, the head of money and markets at Hargreaves Lansdown, said, “Regulators are clearly horrified at the damage superstar celebrities can do to the bank balances of vulnerable consumers, who are influenced by almost every move they make.

“The delusions of quick riches can spread far too rapidly on social media with speculation amplified by reposts by millions of followers.”

Thus, to show its intention of protecting consumers, FCA said, “Consumers should be better informed and aware of the risks involved in purchasing financial products and services, helping them to make better decisions that are aligned with their needs and risk profile. Informed consumers are less likely to experience unexpected loss and loss of trust in financial services.”

The FCA added that its goal is to reduce “the number of consumers investing in HRIs who have a low‑risk tolerance or one or more characteristics of vulnerability by 2025.” The FCA misleading ads removal in 2023 was a clear indication that it aims to protect the consumers. As things stand, the regulator will continue with its misleading financial adverts crackdown.

Guideline for Compliance

The best way for financial corporations and finfluencers to prevent legal repercussions is to implement the FCA financial market strategy guidelines. Both the firms and finfluencers should use promotional material, including meme coin marketing content, which have been approved by FCA-appointed representatives. However, the first step is for the firms and finfluencers to register with the FCA so that the regulator will assess and approve their promotional content.

The promoters should always include risk warnings on their content. This applies to all types of media content such as live presentations, streaming, videos and articles. For videos and streaming the warnings should be visible throughout the presentations.

The firms should ensure that the finfluencers they work with use only FCA authorized content and that they do not include misleading information. It may be advisable for the companies to record all the promotional content they use and for the finfluencers to sign before distributing the adverts.

Finally, firms and finfluencers should avoid excessive targeting using the advertisements. In other words, they should refrain from bombarding the consumers with adverts and other promotional material. The FCA believes that such activities may exploit behavioural biases among vulnerable consumers.

Conclusion

The United Kingdom Financial Conduct Authority (FCA) has warned both firms and finfluencers against using unauthorized promotional material that targets its citizens. Therefore, these parties should abide by the requirements of the UK regulatory body to prevent lawsuits and the legal repercussions like imprisonment and hefty financial penalties. This law will also apply to non-UK based firms and financial influencers.

Author: Mashell C., Gate.io Researcher

*This article represents only the views of the researcher and does not constitute any investment suggestions.

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