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Conflicting FCA and ASA buy now, pay later regulation will ‘confuse’ advertisers

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By Hannah Bowler | Journalist

August 31, 2022 | 7 min read

Earlier this month the Financial Conduct Authority (FCA) warned buy now, pay later brands it would use criminal and financial penalties to crack down on irresponsible influencer ads. But has the FCA stepped on the toes of the Advertising Standards Authority (ASA), which currently has regulatory responsibility in this space?

FCA issues social media advertising warning to buy now, pay later brands

FCA issues social media advertising warning to buy now, pay later brands / Pexels

Rupa Shah is a legal consultant at Hashtag Ad specializing in influencer marketing and has voiced concerns that overlapping by regulators “always causes confusion.” According to Shah, it makes it hard for advertisers to understand which rules to apply and what are the most important disclosures to make when advertising a product.

“All of the buy now, pay later brands had already dissected [the ASA rules] and started to make changes,” she says. “It felt like we were getting in a position where everybody understood what they needed to do. It was going in the right direction.”

The FCA, which cited the cost of living crisis as its reasoning for issuing the warning, said it would take action for failures to label the risk of taking on debt; the consequences of missed payments; and information about when charges become payable.

The financial authority is gearing up to take over jurisdiction of the unregulated buy now, pay later sector in the UK, but this is likely to take two to three years to formalize. In the interim Shah says the ASA is the “right body to handle” the social marketing rules.

“The ASA has the biggest experience with influencer marketing, they have the ability to monitor, they have the compliance methods in place, they have sanctions,” she says.

Shah is a member of Klarna’s influencer council, a group set up by the buy now, pay later company in collaboration with the ASA. The council has already dissected and implemented the existing ASA rules and published best practice guidelines for the rest of the industry to follow.

Shah concedes the ASA does not have the power to enforce criminal or financial sanctions, which the FCA is calling for, but says for social media these sanctions “aren’t always the right approach” anyway.

“The ASA has a whole precedent in social responsibility and harm that is always in its remit, whatever the industry,” she adds.

Ultimately, there should have been more communication between the ASA and the FCA, Shah says.

Despite questioning the FCA’s interventions, Shah says: “It’s entirely understandable and a reflection of the time we are in that the government and regulatory bodies need to be aware of how people are reacting to be further in debt.”

But she disputes that buy now, pay later should be “wiped out of the influencer sphere completely as it is part of the conversation around how we manage our finances, and consumers should have both sides.”

What do Klarna and Clearpay have to say?

Influencer marketing is a key part of Klarna’s overall marketing mix. As a category disruptor, Klarna sees influencers as offering more authenticity and helping distinguish it from traditional banks.

A spokesperson for Klarna said its advertising “promotes responsible spending and our financial promotions already comply with the FCA rules.” They added that it shared the same concerns as the FCA by claiming its competitors don’t have the same high standards, so intervention is needed to protect the category.

“We continue to call for proportionate regulation of the sector so consumers are protected regardless of the provider they choose,” Klarna’s spokesperson said.

Clearpay, which runs adhoc influencer campaigns, such as its work at London Fashion Week, told The Drum it “welcomes any further guidance and recommendations on financial promotions from the FCA.” The company’s statement continued: “We take our responsibility to our customers very seriously and work closely with our merchant partners to ensure communications about our services are compliant and transparent.”

Both Clearpay and Klarna have their own set of guidelines for their partner merchants around financial promotion.

The big influencer marketing crackdown

The influencer marketing sector has been under increasing regulatory pressure, with all industries under intense scrutiny. To help deal with the incoming crackdowns, the Influencer Marketing Trade Body (IMTB) recently launched the Reassure advisory service in collaboration with Shah. The IMTB is also in the process of penning a set of financial services guidelines for the industry.

Its board member Scott Guthrie acknowledged that consumers should always be aware of the risks related to financial products, but called out the crackdowns as “creator bashing.”

“Plenty of finfluencers are making a positive impact,” Guthrie said. “They help to democratize and demystify financial services through creating well-informed, quality content. They offer their online communities relatable lived experiences where once financial education was the preserve of the already-rich and middle class.”

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