This article appeared on the online news platform, Daily Business, and can also be viewed here.
What do the rules on financial promotions have to do with Cristiano Ronaldo? Or for that matter, Kim Kardashian, Floyd Mayweather, DJ Khaled, or Steven Segal. Well, the answer is that these individuals, have all drawn the attention of financial regulators for improper endorsements of financial services or investments.
Take Ronaldo, for instance, currently entangled in a billion-dollar class action lawsuit in the US, because of his collaboration with Binance, which operates a global crypto currency exchange. In November 2022 he joined with the business to sell unique NFTs (non-fungible tokens) depicting “an iconic Ronaldo moment immortalised in the form of a digital statue” sparking controversy. It is claimed that he allowed his name and likeness to be used by Binance to promote unregistered crypto securities, known for their volatile nature, and that he made deceptive statements.
Binance has not had its troubles to seek, having admitted last month to being engaged in money laundering, unlicensed money transmitting and sanctions violations, for which the firm agreed to pay more than $4 billion in fines.
Similarly, Kim Kardashian settled a $1.26 million fine with the SEC in America in 2022 for promoting a crypto asset, EthereumMax, on Instagram without disclosing the $250,000 payment she received for doing so. She has also agreed to cooperate with the SEC’s ongoing investigations.
So why is this important to UK businesses?
The repercussions of such cases extend beyond celebrities; businesses in the UK are entering an era of heightened scrutiny with new financial promotion rules effective from February 2024. Non-compliance with these can result in substantial fines, imprisonment, public censure, and invalidated deals.
And this regulatory spotlight is not limited to traditional financial institutions; any business involved in reselling or distributing credit, insurance products, or investment opportunities could come under the Financial Conduct Authority’s (FCA) financial promotion regime. This includes businesses of all sorts, from vets and dentists to car dealers, bike shops, and even influencers (finfluencers) endorsing financial opportunities.
To successfully navigate these changes, businesses offering, or endorsing, financial products or sharing financial opinions must carefully evaluate their marketing to ensure compliance with regulations and in certain cases FCA registration requirements.
So, what are the changes?
The changes involve the introduction of a new approval process outlined in the Financial Services and Markets Act 2023 (FSMA 2023). From February next year only approved firms (“approvers”) will be able to endorse financial promotions, and the emphasis is on clarity, fairness, and accuracy. While FCA-authorised entities can approve their own adverts, those approving for other firms must demonstrate knowledge and controls and be approved by the FCA to do so.
The new approver regime promises more robust business promotions and it requires diligent governance, comprehensive record-keeping, and ethical incentivisation practices, in case the FCA comes knocking at the door. Staying current with technological advancements and evolving communication methods is also imperative.
The FCA has invested heavily in technology to enable it to actively monitor promotions and during this year has issued significant fines to firms and required promotions which it considered had failed to meet standards to be removed or amended.
The FCA’s commitment to scrutinising promotions underscores the importance for businesses to stay compliant and proactive. This was always an area in which it paid to proceed with caution and with these changes it is even more important to take advice to avoid an own goal or worse.
