Black Swan Partners Limited13 April 2023

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Date Author Change Description

V1.0 13 August DC, HP & SM Final Document

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Contents

1. Implications 31.1 Social Media and Promotions 3

1.2 Interaction on Social Networks 3

1.3 International Communications 3

1.4 Further information 4

1.5 Contact Details 4

2. FCA Guidance Consultation Summary 52.1 Social media and customer communications 5

2.1.1 Introduction 5

2.1.2 FCA Objectives: consumer protection and competition 5

2.2 The FCA’s supervisory approach: a statement 5

2.3 What are social media? 5

2.4 What is a financial promotion 5

2.5 Fair, clear and not misleading 6

2.6 Stand Alone Compliance 6

2.7 Risk warnings and other required statements 7

2.8 Other regulatory issues 7

2.8.1 Recipients sharing of forwarding communications 7

2.8.2 International communications 8

2.8.3 ‘Real time’ and digital media 8

2.8.4 Approval and record-keeping 8

2.8.5 Advertising Standards Authority 8

Copyright Information

© Black Swan Partners Limited 2013This document contains information which is confidential and of value to Black Swan Partners. It may be used only for the agreed purpose for which it has been provided. All proprietary rights and interest in this document and the information contained herein shall be vested in Black Swan Partners and all other rights including, but without limitation, patent, registered design, copyright, trademark, service mark, connected with this publication shall also be vested in Black Swan Partners. No part of this document may be redistributed or reproduced in any form or by any means or used to make any derivative work (such as translation, transformation, or adaptation) without written permission from Black Swan Partners. All third party trademarks referred to herein are the property of their respective owners.

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1. Implications

1.1 Social Media and Promotions

The requirement to have a risk warning on every financial promotion has significant implications for the use of twitter and other limited character social media. In essence, it is very difficult to communicate a financial promotion in 140 characters that is meaningful and effective as well as compliant, as the example later in this document demonstrates. The FCA paper itself highlights this, stating in paragraph 2.9 that ‘firms should consider the appropriateness of character-limited media as a means of promoting complex features of products or services’.The paper proposes one alternative – tweeting an image or link that contains a more in-depth communication, including a prominent risk warning. However, as it is possible for some users not to view images automatically, and some may not click on a link the tweet and the image/link content has to be compliant on a stand-alone basis. This is likely to mean that the tweet text could not contain any inducement or invitation to engage in financial activity. The ability of firms to engage with clients or potential clients by twitter is also somewhat limited, as anything that the firm retweets, even if it was not the originator of the tweet, also needs to be compliant. The firm would therefore be unable to retweet an endorsement if it contained an invitation to engage in financial activity.Overall, this means the companies will have to continue to explore the use of alternative social marketing mediums such as blogs and video and we expect to see a shift to promotional activity where the social media will support suitable risk warnings.

1.2 Interaction on Social Networks

We believe that the most significant opportunity to come out of this consultation will relate to the ability of retail financial clients to communicate with each outside the FCA’s regulation1 and the implications this can have. A recent survey found that 90% of consumers would recommend a brand to others after interacting with them on social2. If retail financial service providers are able to embrace this opportunity it could deliver significant corporate as well as client benefits.This opportunity includes non financial specific networks including Twitter, LinkedIn, Google+, Facebook, Youtube and Pinterest as well as existing financial networks such as Stocktwits, Interactive Investor and eToro.Enabling users to discuss investments, trading ideas and service providers will in the long-term help drive transparency and ultimately improve the offerings available. With the course of business regulatory ‘carve out’, it will be important that corporates are able to clearly distinguish between individuals posting as individuals ‘not in the course of business’ and others posting social media content for commercial gain, whether as affiliates or paid contributors to networks. This will be particularly relevant for social trading companies.

1 http://www.fca.org.uk/static/documents/guidance-consultations/gc14-06.pdf Clause 2.52 Your Brand Sux – www.iabuk.net/about/press/archive/iab-research-shows-social-media-drives-roi-for-fmcg

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1.3 International Communications

The paper makes clear that the FCA’s rules cover any financial promotion that is capable of having an effect in the UK, unless an exemption is available. This has particular implications for social trading firms. The FCA is scheduled to release guidance on copy trading later in 2014, and until it does some firms, regulated in EEA jurisdictions outside the UK, have continued to engage in activities which the FCA has suggested to UK firms are non compliant.It is also interesting that one of the illustrated examples used in the paper is an example of a social trading communication, the non-compliant tweet shown in figure 1. In the past, the FCA has paid little attention to social trading. The paper suggests that in future all operators accepting UK clients, regardless of the regulatory jurisdiction, will need to ensure their social media communications are compliant with FCA regulations.

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2. FCA Guidance Consultation Summary

2.1 Social media and customer communications

2.1.1 Introduction

Digital media are now becoming the media of choice for customer communications and specifically for financial promotions. Firms are using social forms of digital media (social media) for their communications with customers. The FCA rules are intended to be media-neutral to ensure that customers are presented with information in a fair and balanced way. The overarching principle is that any communication should be fair, clear and not misleading.

2.1.2 FCA Objectives: consumer protection and competition

The FCA wants to promote effective competition in the interests of consumers, as well as consumer protection. Digital media can allow new and smaller firms to have a presence in the marketplace. Social media specifically may allow businesses to reach a wider audience. In principle this can make it easier for consumers to switch providers, and so enhance competition. There are significant potential benefits from the use of all digital media by firms, provided this is responsible and customer-focused.

2.2 The FCA’s supervisory approach: a statement

2.3 What are social media?

Social Media are ‘websites and applications that enable users to create and share content or participate in social networking.’ It can be broken down in to the following:

Blogs / Microblogs Social Networks Image / Video-sharing platforms Forums

The FCA recognises that social media are a powerful channel of communication and of significant value to firms. They do not want to prevent their use.

2.4 What is a financial promotion

Any form of communication is capable of being a financial promotion, depending on whether it includes an invitation or inducement to engage in financial activity. For social media it is clear that a promotion is a promotion. One generally accepted way to do this, for character-limited media is the use of #ad

2.5 Fair, clear and not misleading

Principle 7 of the Principles for Business states that it is a fundamental requirement that all communications are fair, clear and not misleading. This stands even if a post ends up in front on a non-intended recipient via re-tweeting on Twitter or sharing on Facebook.

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Firms should also consider the appropriateness of character-limited media as a means of promoting complex features of financial products.

Twitter (140 Characters) Vine (Six Second Video) Pinterest (500 Characters)

It may be more appropriate to use ‘image advertising’ to promote a firm more generally.Below are examples of acceptable and unacceptable promotional tweets: The first figure shows an example of a tweet where the promotion lacks balance, as it over-emphasises the benefits and includes an inadequate risk warning. It fails to comply with the past performance rules as it makes the indication of past performance the most prominent feature, and fails to include performance information of the preceding five years.The second figure is an example of a fair, clear and not misleading tweet, conveying a prominent warning within the character limitation. It also makes clear that the message is a promotion by adding the hashtag #ad.Figure 1: Examples of non-compliant (left) and compliant (right) financial promotion tweets

2.6 Stand Alone Compliance

Each communication needs to be considered individually and comply with the relevant rules. Risk warnings need to be clear and not in much smaller fonts that get lost in the surrounding text.

2.7 Risk warnings and other required statements

There are requirements to include risk warnings and other statements in promotions for certain products/services. A possible solution to the problem of character limitation is to insert images which allow relatively unrestricted information to be conveyed.Image advertising is advertising that only consists of the name of the firm, a logo or other image associated with the firm, a contact point and a reference to the types of regulated activities provided by the firm or to its fees or commissions. Figure 2: Compliant tweet containing image

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Uses 130 of 140 allowed characters (including image) yet far from a meaningful or effective promotion, so much so that risk warning takes up more space than advert.

Twitter images are not always permanently visible therefore where the financial promotion triggers a risk warning required by the FCA, this cannot appear solely in the image. Firms can tweet a link to a website with financial promotion but the signpost must be standalone compliant.

For example: ‘To see our current mortgage offers, go

to www.whaftmortgages.co.uk’This is compliant – the wording does not create a financial promotion

‘To see our great mortgage offers, go to www.wharfmortgages.co.uk’This is non-compliant – the element of inducement with the word ‘great’ creates a promotion that then requires a risk warning.

2.8 Other regulatory issues

2.8.1 Recipients sharing of forwarding communications

Where a recipient shares (e.g re-tweet) a firm’s communication, responsibility lies with the communicator, so in that case the firm would not be responsible.Any breaches of the FCA rules in the original communication are still the responsibility of the originating firm, and not the ‘re-tweeter.’ Where a firm re-tweets a customer’s tweet, the firm is responsible as the communicator, even though the firm did not generate the content of the communication.

2.8.2 International communications

Digital communications are not limited to national borders. There are also a number of measures in place within the European Economic Area (EEA) to facilitate trade and commerce within the EEA. As the UK regulator, the FCA rules cover all financial promotions capable of having an effect in the UK.

2.8.3 ‘Real time’ and digital media

Digital media may not fall within the definition of ‘real-time’ communication under article 7 of the Financial Promotion Order (FPO). Promotion is non-real time and therefore subject to the FCA conduct of business rules where it creates a record of communication, is directed at multiple recipients, and does not require the recipient to respond immediately. The FCA considers a tweet a non-real time promotion.

2.8.4 Approval and record-keeping

Firms have an obligation to have an adequate system in place to sign off digital media communications by a person of appropriate competence and seniority within the organisation.

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Firms should keep adequate records of any significant communications. Firms should not rely on digital media channels to maintain records as older material is often deleted.

2.8.5 Advertising Standards Authority

Advertisers are required to adhere to the Committee of Advertising Practice Code, which applies to ‘non-technical’ elements of financial advertising, for example matters of social responsibility, harm and offence.

2.9 Further information

For further questions on the FCA paper, or for any other information about the retail trading and investment sectors, please contact Black Swan Partners using the details below:

2.10 Contact Details

For further information, please contact:Dominic Crosthwaite Director, Black Swan Partners LimitedEmail: dominic@blackswanpartners.co.ukTel: 0203 176 0090Mob: 07764 195 501Skype: dcrosthwaite

Stuart Millson Consultant, Black Swan Partners LimitedEmail: stuart@blackswanpartners.co.ukTel: 0203 286 8975Mob: 07786 551 764Skype: stuart.millson

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