How do you regulate the Wild West? It could be said that that was exactly the considerable task the Financial Conduct Authority took on four years ago, when it began to work on guidelines for social media communications in the financial services sector.
The long-awaited guidelines were released early last month and, to demonstrate that it understands the medium, the authority even tweeted the highlights.
Not surprisingly, the response from both the financial services industry and social media types was a touch derisory. One user wrote: ‘Does the regulator seriously believe anyone will take out a mortgage based on a promotion on Twitter? What a waste of time!’
But while many financial services companies had previously wholeheartedly pursued communications through social media, there is evidence that many in the £63 billion sector have been waiting for a clearer idea of what is good practice from the regulator.
Firms vary considerably in their use of social media. Investment fund M&G, which launched its Bond Vigilantes blog in 2006, to share the views of its fund managers on issues that mattered to the bond markets, now has more than 13,000 followers for its @BondVigilantes account. However, many do not use social media channels at all.
Many had held off in the hope that the FCA would clarify what firms could say on social media and reassure them by providing examples of good and bad practice.
It is an important area and the financial services industry is all too aware, having gone through a series of mis-selling scandals, that further damage to its reputation through careless marketing could be extremely expensive and damaging.
When the guidelines were published, Antonio Simoes, chief executive of HSBC UK, said: ‘The financial services industry needs to focus relentlessly on what is best for their customers. Our customers are increasingly keen to connect with us using social media, so it is desirable that we have clear standards to meet their expectations.’
Clive Anderson, director of supervision at the FCA, said: ‘The FCA sees positive benefits from using social media but there has to be an element of compliance. Primarily, what firms do on social media must ensure customers are at the heart of their business.
‘Our overall approach is that financial promotions, whether on social media or traditional media, should be fair, clear and not misleading.’
The publication of these guidelines is just the first step in the beginning of a process. Between now and 6 November, the FCA is welcoming responses on its guidelines. As Anderson notes, the FCA recognises that social media is constantly evolving and it does not want to stifle innovation.
So what do the guidelines say broadly? The FCA’s view is that social media can be beneficial for the financial services sector if used in the right way. It can play an important role in fostering competition as well as increasing consumer knowledge.
Its approach is to set parameters, rather than to tell users exactly what to do.
That said, much of the guidelines is fairly self-explanatory. Ensuring that all communications are fair, clear and do not mislead consumers or that there should be a distinction between personal and business communications should come as no surprise.
Other tips include using the hashtag #ad to identify financial promotions for investment products.
The guidelines also suggest that images can be embedded in social media messages to overcome restrictive character limits on platforms such as Twitter.
However, in an example of the regulator’s uncertainty around the medium, in the very next paragraph, the guidelines point out that it is possible to turn off embedded images, which means that embedded images cannot be used to include any information required by regulation after all.
The regulator also suggests making use of specialist software to help advertisers target particular audiences.
Only a complete social media novice would be surprised by the reminder that firms are responsible for the content when retweeting another user. But there are some slightly more helpful examples of compliant and non-compliant Instagram photos.
The guidelines also stress the importance of keeping ‘adequate records’ of any ‘significant’ social media communications, which may enable the firm to deal effectively with any subsequent complaints.
Views so far of the guidance have been divided. While some praise the FCA for putting it out, others have questioned why there need to be special rules for social media at all, especially since the medium is likely to look different by the time those rules are implemented anyway.
Others meanwhile feel that the guidelines do not go far enough in helping financial services firms to really embrace social media. They would welcome a more prescriptive approach.
Bridget Greenwood, an independent financial adviser who has started a consultancy advising on social media use, wrote on her blog that there is now no longer an excuse for companies not to start using social media.
‘The real value of the FCA’s new guidance is in helping firms understand what a compliant promotion looks like. And to outline what does and does not constitute advice. This has been a grey area for too long. The FCA could go further, but by sharing pictures of what good looks like, it has taken a valuable step forward,’ she writes.
She is optimistic that now marketers in the financial services industry will reassess their risk appetites and start to use social media in more creative and effective ways.
There has been a predictably bland response from most of the large financial services companies, many of whom have already begun to use social media without waiting for the FCA’s hand-holding.
‘It is encouraging to see that the FCA is acknowledging the social trend and engaging with the industry so we can make the most of this media channel,’ says Anne Richards, chief investment officer at Aberdeen Asset Management.
Schroders said the guidance is ‘mostly reflected’ in its current social media policy, but added: ‘We will look to enhance our policy as a result of the guidance.’
Standard Life said: ‘We have both a social media policy and digital governance framework in place and will be reviewing the FCA’s proposed social media guidelines to ensure we meet, or exceed, the new standards.’
Not all members of the industry are so welcoming of the FCA guidance. A discussion between members of the UK pensions industry on LinkedIn was very critical of the regulator’s attempt to respond to the increasing use of social media.
‘The FCA has a problem, as it seems to be trying to reinvent the wheel and Highway Code at the same time as trying to control a vehicle that no longer has wheels or is powered by petrol derivatives and that can, using technology, control and navigate itself quite responsibly indeed,’ says Derek Bradley, chief executive of Panacea, an online information exchange for UK financial advisers.
The Investment Management Association is now preparing to set up a dedicated social media forum, which will enable members to keep up to date with the changing social media landscape and relevant regulation.
The association’s risk, compliance and legal director Guy Sears says: ‘The IMA supports the FCA’s guidance consultation and will be working with its members to ensure that investors are provided with fair and clear information, regardless of how they wish to consume their media.’
But if a step-by-step guide was what the financial services industry wanted, this guidance appears to be something of a damp squib. As Howard Wilmot, communications director at integrated agency Embrace, puts it: ‘In a nutshell, while giving examples of good and bad practice, it’s done nothing to truly assist a nervous industry in tackling the medium for effective marketing strategies.’