Earlier this month the Financial Conduct Authority (FCA) published a guidance consultation, GC14/6 Social media and customer communications, regarding the methods used by financial services firms to communicate with their customers. The FCA has taken note of the rising use of social media to promote investment products or services and its concern centres on ensuring that this communication is fair, clear and not misleading.

The FCA warns, “that any form of communication (including through social media) is capable of being a financial promotion, depending on whether it includes an invitation or inducement to engage in financial activity.” If a firm is making a financial promotion, it must include the proper balance of potential risks and benefits.

The consultation also highlights a particular concern with social media websites that limit the amount of characters, like Twitter (140 characters), making it particularly difficult to display all the compulsory information needed for a financial promotion. The consultation includes several screenshots of solutions to the character limitations issue, such as adding images and using a hashtag (#ad).

Social media has the potential to rapidly share information to a wide audience. This potential has been realised by firms in all sectors. It opens up a direct line of communication to its existing and potential customers. However, another issue is that due to the sharing nature of social media, the communication could be passed on to others that were not the intended audience.

Who is really impacted?

While the proposed regulation would affect anyone operating in the financial services industry, this could potentially hit hard on the alternative finance space. Crowdfunding and peer-to-peer (P2P) platforms regularly use and rely on social media to share their service offerings and individual funding campaigns to their audiences.

Alternative finance fundamentally relies on the participation of many individuals as well as the use of social media to generate a buzz for campaigns that excite investors and make them aware of interesting investment opportunities.

Many feel that the proposed regulation could damage the industry. Alternative finance is a sector that has seen exponential growth in recent years, and much of that can be attributed to the ‘crowd’ being able to quickly and widely share information on social media pages.

Conclusion

Our main concern here is whether firms will now be scared of the compliance issues or find it too difficult to remain compliant within social media. This could potentially discourage competition, as smaller businesses find social media is a cheap and effective way to advertise their services and offerings. Additionally, alternative finance platforms rely heavily on social media and it would be discouraging to see this sector’s growth stifled if it were unable to reach its customers effectively
The full consultation can be found here and is open for comment until November 6th 2014.