In recent years, the coronavirus pandemic has enabled opportunistic marketers to target Internet users who spend more time online, leading to a sharp rise in online investment and digital crime, such as crypto investment schemes and currency scams. Over the past few years, some countries have tightened their advertising regulations in the financial sector in order to protect the public.

February 2022 - Cyprus CySEC Announcement

On February 1, 2022, the Cyprus Securities and Exchange Commission (CySEC) announced plans to enhance its marketing compliance regulatory capabilities through the use of new technologies and other tools.

Speaking about the fines and settlements totalling more than €1.34 million, CySEC Chairman Dr George Theocharides stressed that the vast majority were the result of violations of MiFID II laws by the Cyprus Investment Company (CIFs).

Since 2020, CySEC has issued more than €4.53 million in fines, of which €3 million was for CIFs. In 2021 alone, four CIFs service providers have had their operating licenses revoked, six have had their operating licenses suspended, and more than 70 regulated entities have been ordered to take swift action to fix weaknesses or omissions found in regulatory inspections.

CIF, its affiliates and introducing brokers are all subject to ESMA and MiFID II regulations. The most basic rules of advertising are as follows:

● Includes standardized risk warnings

● Does not include any loss guarantees or promised returns

● Do not promote any form of inducement

● Does not include investment advice or recommendations

● Unauthorized use of regulatory agency names for products

As CySEC intensifies its regulatory activities, CIF must be more vigilant about its marketing compliance in terms of financial, banking, investment and insurance compliance to avoid financial penalties and other sanctions.

February 2022 - The UK's FCA cracks down on social media and other forms of marketing

CySEC is just one of the agencies cracking down on abusive marketing in the industry. Britain's Financial Conduct Authority, the FCA, is also cracking down on social media and other forms of marketing that promise high returns and financial security or use fake celebrity endorsements.

Freetrade suspended its social media activities after TikTok and Instagram influencers failed to fairly and significantly demonstrate any associated risks, in breach of COBS 4.2R of the FCA Manual. Influencers on these platforms advise traders to "clear the debt" and get a "free" share.

Social media has also come under scrutiny from the FCA, with celebrities including England football manager Gareth Southgate, Prince Harry and Meghan Markle forced to take legal action after their names were used in crypto scams. Emails and social media accounts were used to spread false endorsements of these celebrities, claiming they were making money from fake bitcoin and other cryptocurrency scams.

The FCA said this was a worrying trend and a growing problem, with more than 34,000 reports from consumers in 2021 relating to suspicious and potentially fraudulent investment schemes. That compares with 8,000 in 2016. This trend and the associated risks have made many retail brokers reluctant to invest in social media as a way to generate traffic.

A spokesman for the FCA said: "People should be very careful when they see adverts for investments that offer high returns, even if they appear to be endorsed by celebrities."

According to Action Fraud, in the financial year between April 2020 and March 2021, 500 investment scams using fake celebrity endorsements were uncovered, with losses of more than £10 million.

March 2022 - Australian ASIC Warning

ASIC recently announced that they will actively monitor non-compliant marketing by influencers and warned brokers to monitor their marketing partners to avoid penalties.

The 2021 ASIC Young People and Money Survey found that 33% of 18 - to 21-year-olds follow at least one financial influencer on social media. Another 64 percent said they changed at least one of their financial behaviors as a result of following a financial influencer.

ASIC Commissioner Cathie Armor said: "The way investors access information is changing. It is vital that influencers who discuss financial products and services online comply with the Financial Services Act. Otherwise, they risk hefty penalties and put investors at risk. "

Non-compliance by social media influencers includes misleading or deceptive conduct, arranging transactions, and advice on financial products. Companies must perform due diligence on influencers, as AFS licenees who use influencers are responsible for any violations.

Penalties range from imprisonment and fines to enhanced regulatory reviews and resource-intensive audits.

ASIC monitors select online financial discussions by influencers who feature or promote financial products with misleading or deceptive statements or unlicensed advice or transactions. If we find that damage has occurred, we will take action to enforce the law." Ms. Armour concluded.

October 2022 - New standard for crypto advertising in the UK

From May 2, 2022, brokers promoting cryptocurrency investments and their marketing partners will have to comply with strict advertising regulations detailed in the ASA's recent enforcement notice. Failure to do so could result in sanctions or further review and investigation.

Ads must clearly indicate cryptocurrency investments:

● Unregulated in the UK

● There is a variable value that can go down or up

● May be subject to capital gains tax

● Not safe or guaranteed, or will follow past performance

● There is no need to rush into action

● These are not easy decisions to make and are not for everyone

● Credit cards should not be used for purchases

● Unregulated market and brand protection

Unregulated markets are a breeding ground for deception and fraud. Almost every country has legislation to protect consumers from false or deceptive marketing. The best way to avoid this is to arm yourself with knowledge of common tricks and lies.

As it is not just consumers who can be harmed by false advertising, the European Commission's Misleading and Comparative Advertising Directive also protects traders from misleading comparisons marketed by competitors.

conclusion

As regulators such as CySEC, ASIC and the FCA increasingly use new technologies to monitor and oversee how regulated entities use marketing and advertising, businesses must ensure they are equally well equipped.

New regulatory policies can help regulated brokers reduce the risk of repetition, such as missing T&Cs, disclosures, representative examples, claim mechanisms, inaccurate APRs, inaccurate quotes or landing pages, and the use of phrases prohibited by advertising regulations.

Proactive management throughout the marketing partner lifecycle, such as screening the suitability of new affiliates' online content, will help reduce risk and save time and money.

As regulation of the retail trading sector is likely to become more stringent over time, especially in light of the global economic downturn, there will be benefits to improving marketing compliance and future assurance with sophisticated systems tailored to your specific needs.

Source: FX110