The City watchdog has put social media companies “on notice” to strengthen their consumer protections or face penalties.
Speaking at the Financial Conduct Authority’s (FCA) annual public meeting today, Mark Steward, the regulator’s executive director of enforcement and market oversight, said: “All of them [social media firms] need to change their processes or procedures otherwise we will have to take action.”
“We are putting them on notice that we expect them to be involved in the process of protecting the community,” Steward added.
The warning comes as social media firms have been slammed by the FCA for a lack of oversight of posts promoting cryptocurrency assets and other high risk investments.
Charles Randell, the regulator’s chair, has said younger consumers were making cryptocurrency investments to avoid “missing out” despite having little understanding of the risks involved.
Kim Kardashian recently sent out a paid post promoting a newly created cryptocurrency token called Ethereum Max to her more than 250m followers on Instagram.
Social media firms must do more to stop advertising “dodgy financial promotions” that fuel a surge in fraud, Steward added.
Speaking at the meeting, Nikhil Rathi, chief executive of the FCA, stressed building up people’s financial literacy, particularly younger Brits, is crucial to ensure they limit losses from high risk investments such as cryptocurrency.
A large proportion of consumers are turning to social media to source financial advice. Research by Skipton Building Society shows over 18m Brits trust financial advice shared on social media.
12 per cent of people think the crypto assets are regulated by the FCA. However, they these assets largely sit outside the FCA’s regulatory framework.
“We are concerned about… [whether] people understand the risks” involved in holding crypto assets, Sarah Pritchard, executive director of markets, said.
The FCA also apologised for its failings in handling the damage caused by the collapse of mini-bond trader, London Capital and Finance.