The Financial Conduct Authority (FCA) has ordered Freetrade to remove all sponsored influencer posts within 24 hours, following a string of potentially misleading advertisements on social media.
Most recently, the City watchdog became concerned after the platform sponsored an influencer who had previously posted videos claiming to have cleared £14,000 of debt in 18 weeks without disclosing the related investment risks.
The FCA said that the influencer’s audience of 64,000 TikTok followers could be in a vulnerable position following her previous remarks, and could be misled by Freetrade’s endorsement.
It breached a clause in the authority’s code of conduct that stated ads should be “fair, clear and not misleading”.
It said: “The promotions provide customers with the impression that they could reduce debt by following the steps taken by the social media influencer. Consumers already in debt are particularly vulnerable to this.”
The decision to impose sanctions came after the firm was warned about its online advertising on two separate occasions – first in March 2020 and then in March 2021 – when the FCA flagged posts as misleading.
Actions were taken by Freetrade to prevent further breaches, including hiring a financial promotions specialist and sending a senior member of staff on a day course in social media regulation, but the error has reoccurred.
A spokesperson for Freetrade, said: “We are committed to upholding the highest standards, ensuring that we act in the best interests of our customers and treat them fairly.”
The company must confirm this action by sending a full list of the removed sponsorships to the regulator.
In an ongoing clampdown on misleading financial advertising, the FCA amended or withdrew 295 non-compliant promotions in the fourth quarter of 2021, 77% of which were posted on websites or social media.
It recently addressed concerns about the ease and speed with which people can make risky investments, stating that it intended to improve risk warnings on ads and ban incentives for new customers.
Sarah Pritchard, executive director of markets at the FCA, said: “Too many people are being led to invest in products they don’t understand and which are too risky for them. People need clear, fair information and proper risk warnings if they are to invest with confidence.”
Since joining the FCA as chief executive in 2020, Nikhil Rathi has taken a robust stance on the role social media has played in promoting risky, and sometimes fraudulent, investments to misinformed consumers.
He has campaigned for further government intervention on financial matters to give added force to penalties on companies peddling misleading advertisements.
One way of doing this, he said, was to criminalise scam advertising, a proposal put forward in the Online Safety Bill, which has yet to be passed.
US reality star Kim Kardashian is currently involved in a lawsuit after promoting a cryptocurrency – Ethereum Max – to her 250 million Instagram followers shortly before the asset dropped in value.
Rathi said: “Social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation. Some influencers promote coins that turn out simply not to exist at all.”
In the first half of last year, more than £107.7m was lost to investment scams, up 95% on the same period in 2020, according to data from UK Finance. The organisation noted that adverts on social media offering high returns represented one of the most common scams.