By way of example, this could occur where a celebrity endorses an investment but omits material information — such as relating to risk level, potential returns, or transaction fees — which, had the innocent party known about it, they would not have made the investment.
Misrepresentation can be fraudulent, negligent, or innocent. A celebrity’s personal ignorance of what they were promoting may not suffice as a credible defence to claims brought against them.
Alternatively, investors may seek statutory protection from the Financial Services and Markets Act 2000 and the Companies Act 2006. The FSMA further imposes liability on those who make false statements about financial services and securities. In particular, Section 90 prohibits the publication of untrue, misleading, or incomplete information about shares in prospectuses.
Bound by directorship duties
Celebrities who are office holders are particularly vulnerable to litigation. Not only will they be bound by their directorship duties as set out in Sections 171-177 of the CA, but they are also liable under Section 463 if they create false or misleading statements (or omissions).
Financial services providers in the UK are heavily regulated by the Financial Conduct Authority, meaning that financial advisers must be authorised and supervised. If regulations are breached, the FCA can sanction the companies and individuals involved.
The purpose behind this is to prioritise customer protection over profit by providing consumers with redress should something go wrong. When a financial adviser advises a consumer on their investment strategies, their advice is required to be appropriate for the consumer’s risk appetite and financial portfolio.
An influencer who provides financial advice will be in breach of the general prohibition on such advice being given by unregulated persons (Section 19 of the FSMA). Much of the argument may involve the question of whether an influencer is actually providing “advice” in relation to the investment.
However, the “gamification” of mobile investment apps has made investing more widely accessible than ever. Stock trading is no longer restricted to those with access to professional financial advisers. While this accessibility is encouraged, the accompanying rising knowledge gap is not.
Indeed, a worrying number of new consumers have been found to know next to nothing about what they are investing in. This, coupled with influencers endorsing investments through paid advertisements, creates the potential for mass misinformation.
These risks have not gone unnoticed. Since October 2023, companies promoting crypto assets to retail consumers now fall within the FCA’s regulatory scope. In November 2023, the regulator published its “Finalised non-handbook guidance on cryptoasset financial promotions”. The guidance aims to support crypto firms in complying with the new marketing rules and confirms that they expect such firms to act in good faith and to not exploit or manipulate retail customers’ vulnerabilities.
