Seven influencers sentenced over illegal FX promos

Seven social media influencers have been sentenced at Southwark Crown Court after admitting a criminal offence linked to promoting an unauthorised foreign exchange trading scheme.

Biggs Chris, Jamie Clayton, Lauren Goodger, Rebecca Gormley, Yazmin Oukhellou, Scott Timlin and Eva Zapico pleaded guilty to one count of issuing unauthorised financial promotions, according to the Financial Conduct Authority (FCA).

Goodger was fined £3,750 and ordered to pay costs of £5,778.18. Chris was fined £600 and ordered to pay costs of £1,000. Clayton was fined £820 and ordered to pay costs of £1,000.

Gormley received a conditional discharge and was ordered to pay costs of £2,866.42. Oukhellou was fined £974 and ordered to pay costs of £1,000. Timlin was fined £938 and ordered to pay costs of £1,000. Zapico received an absolute discharge and was ordered to pay costs of £1,770.44.

Their Instagram accounts had a combined following of 4.5 million, the FCA said.

Steve Smart, the FCA's executive director of enforcement and market oversight, said the case should serve as a warning about the consequences of financial promotions that fall outside UK rules.

"These influencers betrayed the trust of those who followed them. We'll continue to work with responsible influencers and go after those who put the financial wellbeing of their followers at risk," Smart said.

Regulatory perimeter

UK law restricts who can carry out regulated financial activities and who can approve marketing for regulated products and services. Breaching the "general prohibition" is an offence under Sections 19 and 23 of the Financial Services and Markets Act 2000, punishable on conviction by a fine and/or up to two years' imprisonment, the FCA said.

Communicating unauthorised financial promotions is also a criminal offence under Sections 21 and 25 of the same Act, which can also result in a fine and/or up to two years' imprisonment on conviction.

The case adds to scrutiny of influencer marketing in financial services and reflects the FCA's view that social media has increased the speed and reach of promotions. The regulator has warned that poor-quality financial promotions can cause significant consumer harm, particularly where products are complex or high risk.

High-risk products

The FCA highlighted risks associated with contracts for difference (CFDs), which are often marketed to retail customers online. CFDs are derivatives and are typically leveraged. Leverage uses borrowing to amplify returns, but it can also amplify losses.

The FCA has previously said 80% of customers lose money when investing in CFDs because of the risks. It has warned that investors can lose more than they invested when leverage is involved.

In the UK, the FCA has imposed restrictions on how CFDs and CFD-like options can be sold and marketed to retail customers. The rules include leverage limits ranging from 30:1 to 2:1, depending on the volatility of the underlying asset. Firms must also close out a customer's position when funds fall to 50% of the margin needed to maintain open positions on a CFD account.

Other measures include protections that cap losses at the total funds in a customer's trading account and a ban on cash and other inducements designed to encourage retail customers to trade. Firms must also provide a standardised risk warning stating the percentage of the firm's retail client accounts that incur losses.

Social media guidance

The FCA has issued finalised guidance on financial promotions on social media, setting out expectations for how promotions should be communicated on social platforms. It said its financial promotion rules are technology-neutral and apply across all advertising channels, including social media.

The guidance covers authorised firms that communicate or approve financial promotions, as well as unauthorised people-such as influencers and affiliate marketers-who promote financial products and services online. The FCA said unauthorised persons who promote a regulated financial product or service without approval from an appropriate FCA-authorised person may be committing a criminal offence.

The FCA has described the guidance as a clarification of existing obligations, rather than a new set of requirements. It also includes perimeter guidance on when a communication may constitute a financial promotion.

The FCA said it expects firms to comply with existing restrictions on CFD marketing and sales. It also set out areas of supervisory focus, including attempts to avoid Handbook rules and compliance with financial promotion requirements, such as the prominence of standardised risk warnings.