On 22 October 2024, the United Kingdom’s Financial Conduct Authority (UK FCA) escalated its efforts to combat financial misconduct on social media, targeting 20 so-called “finfluencers” as part of a new initiative to curb illegal financial promotions. These social media influencers, popular among young followers, are being interviewed under caution by the UK FCA. The authority also issued 38 alerts against various social media accounts suspected of promoting financial products unlawfully. Finfluencers, a term used to describe influencers who promote financial services and products to their online followers, have come under the scrutiny of UK FCA after they gained popularity in recent years. Many finfluencers present themselves as successful investors, flaunting luxurious lifestyles and encouraging their audiences to follow their investment strategies. With nearly two-thirds (62%) of 18- to 29-year-olds following influencers and 74% of those expressing trust in their advice, the potential for harm is substantial. The UK FCA’s concern is that many of these finfluencers are not authorised to provide financial advice, yet they influence a vulnerable demographic prone to making impulsive financial decisions.
The rise of finfluencers has led to an increase in scams and investment failures among young people. These influencers often promote high-risk investment products, such as Contracts for Difference (CFDs). CFDs are speculative financial instruments that allow investors to bet on the price movements of various assets, including foreign currencies. While these products can offer significant returns, they are also highly leveraged, meaning that investors can lose more than their original investment. The UK FCA has long warned of the risks associated with CFDs, noting that 80% of retail investors lose money when trading them.
The UK FCA’s action comes at a time when the number of young victims of financial scams is rising, and the role of finfluencers in promoting these schemes is becoming increasingly problematic. Many finfluencers fail to adequately explain the risks involved in the products they promote, which can result in followers making uninformed and dangerous financial decisions. Steve Smart, joint executive director of enforcement and market oversight at the UK FCA, discussed the responsibility these influencers carry, stating, ‘Finfluencers are trusted by the people who follow them, often young and potentially vulnerable people attracted to the lifestyle they flaunt.’ He added ‘Finfluencers need to check the products they promote to ensure they are not breaking the law and putting their followers’ livelihoods and life savings at risk.’
The UK FCA’s recent crackdown follows an investigation into illegal financial promotions on social media. Earlier in 2024, the UK FCA brought charges against nine individuals involved in promoting an unauthorised foreign exchange trading scheme through Instagram. The scheme, allegedly operated between 2018 and 2021, involved unregulated financial promotions of CFD products, targeting young investors. Among those charged was Emmanuel Nwanze, accused of running an unauthorised investment scheme and promoting it through the Instagram account @holly_fxtrends. According to the UK FCA, Nwanze and Holly Thompson, another defendant, provided advice on buying and selling CFDs without the necessary UK FCA authorisation.
In addition to Nwanze and Thompson, several other influencers with large number of social media followings were allegedly paid to promote the unauthorised scheme. These include Biggs Chris, Jamie Clayton, Lauren Goodger, and others, who collectively have millions of followers. All of these individuals face charges related to issuing unauthorised financial promotions, a violation of Section 21 of the United Kingdom’s Financial Services and Markets Act 2000. Breaching this section is a criminal offence punishable by fines and imprisonment of up to two years.
Court proceedings against these individuals began in mid-2024, with initial hearings taking place at Westminster Magistrates’ Court. On 13 June 2024, six of the defendants appeared in court, where some, including Nwanze and Thompson, pleaded not guilty. Others, such as Lauren Goodger and Eva Zapico, did not enter pleas at the time. Subsequent hearings were scheduled, with a plea and trial preparation hearing set for 11 July 2024 at Southwark Crown Court.
The UK FCA has warned and tried to raise awareness that these finfluencers violated provisions of the United Kingdom’s Financial Services and Markets Act 2000, which prohibits unauthorised individuals from promoting financial products or schemes. The legal case against them discusses the risks posed by unregulated financial advice on social media. In particular, the UK FCA alleges that these finfluencers exploited their influence over their young, impressionable followers to promote high-risk products without adequately explaining the potential downsides.
For consumers, especially young people, the UK FCA offers guidance on how to avoid falling victim to such schemes. The authority urges individuals to check its warning list of unauthorised firms and individuals before making any financial decisions. It also encourages the public to visit its InvestSmart page, which provides helpful information for making safer investment choices. The UK FCA has also published detailed guidance on the proper conduct of financial promotions on social media, hoping to curb the misuse of these platforms for promoting risky and unlawful investments. By targeting illegal promotions and issuing clear guidance on financial communications, the UK FCA aims to ensure that consumers, especially young people, are not misled into making risky investments based on unreliable advice from unauthorised individuals.
(Source: https://www.fca.org.uk/news/press-releases/fca-cracks-down-illegal-finfluencers, https://www.fca.org.uk/news/press-releases/finfluencers-charged-promoting-unauthorised-trading-scheme)
