Social media sites warned over risky investment offers

City watchdog flags up platforms such as YouTube and TikTok in promoting investments to inexperienced consumers

The City regulator has warned social media sites that it may take action if they continue to promote risky and sometimes fraudulent investments to often inexperienced consumers.

The Financial Conduct Authority is concerned about the growing influence that sites such as YouTube, Instagram and TikTok are having on a new breed of mainly younger DIY investors, whom it believes are taking big financial risks when investing in cryptocurrencies, foreign exchange trading and other high-risk products.

In a speech, Nikhil Rathi, the FCA’s chief executive, said the big internet companies “need to take greater responsibility” for their role in connecting consumers with these investment offers. He said too many of the “investment opportunities” that people were finding online “prove too good to be true”, and the FCA was looking at how social media sites were adapting to new rules on so-called financial promotions. “If needed, we will take action,” he said.

The FCA also has search engines such as Google in its sights; and has accused platforms of profiting from investment scam adverts. The regulator’s powers in this area include being able to fine companies and ban adverts. Previously, online platforms were exempt from the financial promotions regime, but this exemption was removed when the UK left the EU.

The FCA regulates advertising for most financial services, including many types of investment products; under the rules all financial promotions “must be clear, fair and not misleading”. The regulator’s website, which was updated this month, makes clear that these rules apply “regardless of the media type”, adding that financial promotions can take the form of a website, Facebook post or tweet.

Rathi, in his speech to UK FinTech Week, said: “We see no reason why different standards should apply to a search engine or social media compared to a newspaper. If these platforms choose to display, and profit from, adverts for risky – and in some cases fraudulent – investments, they should also comply with financial promotions rules.”

He added that the influence these websites had on consumers – especially newer DIY investors – was growing. Compared with more experienced investors, those with less than three years’ experience were more than twice as likely to rely on YouTube or social media sites for research or finding investment opportunities, according to the regulator.

“Consumers shouldn’t be subject to lower standards or greater risks because they find an investment online … Consumers – and firms – benefit when financial promotion rules apply fairly to both digital and more traditional media,” Rathi said.

Social media has been a big driver in the rapid rise in the numbers of young investors in recent years. On Instagram there are millions of posts featuring #investing and #finance, while on TikTok videos featuring such content have generated billions of views.

In March, the FCA said that these often younger and more diverse DIY investors were making riskier choices because they liked the challenge and the status this conferred, and they were often swayed by the influencers they followed.

In September 2020 the regulator said it was important that firms such as Google “bear clear legal liability” for the financial promotions they passed on, at least to the same extent as traditional publishers.

Contributor

Rupert Jones

The GuardianTramp

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