Out-Law News 1 min. read

Firms should review financial promotions through social media and financial crime controls

Investment and trading firms in the UK must maintain robust systems and controls in relation to social media communication and advertising or publicity arrangements, such as endorsements by influencers or celebrities, financial regulation experts at Pinsent Masons have said.

It comes after nine social media “influencers” were charged by the UK’s Financial Conduct Authority (FCA) with issuing unauthorised financial promotions and running an unauthorised investment scheme. The FCA alleges that, between 19 May 2018 and 13 April 2021, the individuals used an Instagram account to provide advice on the buying and selling of investments called contacts for difference (CFD). The FCA further alleges that the influencers were paid by account owners to promote the Instagram account.

Sébastien Ferrière of Pinsent Masons said: “Firms should note that the FCA is regularly monitoring social media platforms for unauthorised financial promotions and is increasingly likely to have misleading or unauthorised promotions removed before beginning prosecutions of firms or individuals.”

Nicholas Kamlish of Pinsent Masons said: “Looking at the wider picture, these actions are consistent with the regulator’s focus on financial crime outlined in its most recent business plan. While the FCA may be more willing to settle enforcement cases or use supervisory tools in regulatory cases, particularly where firms offer prompt and comprehensive remediation, the FCA will look to prosecute cases concerning financial crime, particularly in relation to high-risk products like CFDs and cryptoassets.”

In the last year, the FCA has secured charges, convictions or sentencing in at least 13 criminal cases. The majority of the cases concerned fraud in relation to areas such as unauthorised investments and CFDs.

In a recent case, the defendant pleaded guilty to fraud by false representation and received a six-year sentence. The fraud impacted more than 240 customers, who invested approximately £19 million in an investment scheme backed by falsified trading statements and the payment of uninvested funds to new customers.

“Firms should also note the heavy emphasis in recent outcomes and communications from the regulator on systems and controls for detecting and preventing financial crime, including fraud, money laundering and market abuse,” said Kamlish.

In another case, the FCA found that an investment brokerage with coverage of commodities and FC markets had failed to maintain anti-money laundering (AML) systems and controls. This included a failure to carry out adequate customer and firm-wide risk assessments and ongoing monitoring of customer relationships. An important factor in this case was that the FCA had previously warned the firm of these issues, but there was remedial action taken.

“The message from the regulator is clear. Firms regulated by the FCA for purposes of AML supervision need to invest in their financial crime prevention frameworks, updating policies, training staff and assessing risks. Otherwise, firms may face supervisory and enforcement action. This will be particularly likely if a firm has been subject to previous regulatory scrutiny,” said Kamlish.

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