Blair McPherson, Managing Director, Profilir Ltd. (an Apex Group company)
As part of the UK Financial Conduct Authority’s (“FCA”) renewed commitment to protecting consumers and investors as part of Consumer Duty, the regulator this week concluded a consultation on how its financial promotion requirements can and should apply to social media. The FCA plans to review the responses to the consultation and publish a final guidance later in 2023.
The FCA aims to ensure that all financial promotions should be fair, clear and not misleading by implementing platform-neutral rules which apply across all channels used to advertise financial products, including social media. This can be difficult on social media, where people from across the world, with varying levels of financial knowledge and understanding, meet on one forum where communication is necessarily truncated.
So far, much commentary has focussed on what this means for ‘finfluencers’, celebrities or other individuals with a large social media followings who promote a regulated financial product or service. This has followed significant noise around the suitability of influencers promoting high risk investments such as crypto to a large audience of often young or inexperienced investors. While this guidance is aimed at protecting retail investors, regulated institutional investors are also pulled into scope.
So what could this new guidance mean for institutional investors who are using social media platforms such as LinkedIn or X (formerly known as Twitter) as channels to provide content to potential investors?
Asset managers, and specifically funds such as private equity and hedge funds are only permitted to market to qualified, professional investors, and are increasingly finding that social media platforms, while having a large audience, are unsuited for financial promotion, specifically funds.
Asset managers currently tend to use LinkedIn and X to raise brand awareness across their broad user base, but are not able to use the platforms to post fund marketing content nor interact with prospective investors as they cannot verify their location and investor status. Indeed, some are currently teetering on the grey area around what is compliant, sharing thought leadership and fund information – the grey area which the FCA’s consultation is seeking to illuminate. As such, institutional investors have found that due to the existing regulatory rules on investor targeting by type and jurisdiction, that current social media platforms are not fit for their purpose.
The FCA may find that putting the genie back in the social media bottle to be a challenging task. Indeed, instead of the existing social media platforms available, institutional investors are crying out for a tech solution which offers the same accessible interface and ease of user experience, while allowing them to target specific investor audiences.
These current social media platforms are not fit for the purposes of asset managers, who require a closed access, invite only platform. This could be either a standalone or white label product that would allow asset managers to share fund marketing collateral and media with relevant audiences. An asset manager could post a call to action on an existing social platform such as LinkedIn and/or X (formerly Twitter) encouraging interested parties to register on this controlled platform or on a white label platform for more information. This step would take less than a minute and be free for investors, allowing managers to control who has access to fund related content and meet compliance requirements.
Such a solution would look like familiar social media, but crucially would require investors, upon registration, to self-declare their investor type and what country they are in, this information could then be verified through supporting document upload. This means that investors would automatically be restricted to only having access to Asset Manager marketing which is compatible with their investor type and jurisdiction. It would also allow asset managers to actively control and filter the investors which can access their content.
This would remove a whole host of compliance-related headaches, giving the Asset Manager complete control and the ability to remove access at any time for investors that are registered on the platform. The multi-user access enables an Asset Managers’ compliance team to have access and stores all interactions in an archive for up to seven years.
The FCA is not alone in seeking to scrutinise promotion of financial products on social media platforms, and we expect many global regulators to announce similar plans in the coming months. As is often the case, fintech problems require fintech solutions. New technology is needed to enable controlled and compliant distribution of fund information to qualified investors.
As asset classes such as private equity become more ‘democratised’ and open up to a larger number of smaller investors, having the technology to deliver compliant, and fit for purpose digital marketing channels will become more essential than ever.
