Influencer marketing – the regulatory framework

Answer

No longer the prerogative of celebrities, everyday individuals are capitalising on their ability to organically grow a following on social media by becoming 'influencers'. Yet, as the influencer industry has grown and professionalised, so too has the influencer marketing industry. With businesses increasingly opting to partner with influencers to advertise products or services to their target markets, the influencer marketing industry is now worth a reported $24 billion dollars.

How businesses partner with influencers may vary. It may entail a contractual relationship, whereby a business pays an influencer to endorse their products in line with the business's editorial vision. Alternatively, advertising partnerships can be more nuanced – for example, businesses gifting products or services in the hope of a review, the provision of affiliate links or even collaborative products.

Yet, for businesses that partner with influencers, it’s imperative that both they and the influencers they work with are regulatory compliant. This is because where influencers fall short of the expected regulatory standard, businesses can be held to be equally responsible for failings and, as such, can be equally liable to enforcement action.

Rulings by the Advertising Standards Agency (ASA) demonstrate this principle. For example, in 2020 the ASA ruled against Pretty Little Thing (PLT) for a post by Molly-Mae Hague, which contained Hague posing in PLT clothing. Despite there being a contractual relationship between Hague and PLT, the fast-fashion retailer denied culpability for the post. PLT argued that the post was an organic post that didn’t fall within the remit of their contractual agreement, which explicitly required advertising to be obviously identifiable. Nonetheless, the ASA held that given the nature of the post and the relationship between Hague and PLT, the post constituted marketing and needed to be identifiable as such. As the post hadn’t been identified as marketing, PLT was held to be equally responsible for the breach.

Regulatory landscape

The key regulatory bodies include the Competition and Markets Authority (CMA) and the ASA. The ASA deals with complaints relating to breaches of the UK Code of Non-Broadcast Advertising and Direct and Promotional Marketing (CAP Code). The CMA will look at breaches of consumer protection legislation, including the Consumer Protection from Unfair Trading Regulations 2008.

The regulations protect consumers from misleading marketing. For example, where influencers fail to disclose their affiliation to a brand clearly, consumers may be led to believe an opinion of a product, service or place is an influencer's true opinion, as opposed to one they’ve been paid to hold. To combat this, under the CAP Code, marketing must be clearly identifiable as marketing. This is further echoed in the Consumer Protection Regulations which state that editorial content that’s promotional needs to be identifiable as so. Hence, when marketing, influencers must include appropriate tags, such as ‘AD’ or ‘AFFILIATE’. The key is making the statement obvious – disclosing an ad at the end of a caption or in small, illegible font will not suffice.

For marketing of high-risk products and services that are already regulated in their own right, such as gambling services, medical services or financial products, more stringent requirements are imposed. For example, a current concern for both the ASA and Financial Conduct Authority are 'finfluencers' – that is, influencers promoting financial services, products and advice. Some finfluencers are more conventional – for example, promoting payday loans or particular mortgage lenders, while others focus on less conventional financing methods, such as purchasing cryptocurrencies or advising on day trading on relevant markets.

Given the associated risk, the ASA has dedicated a section of the CAP Code to 'Financial Products', while the FCA has also published guidance as of March 2024 titled 'Financial Promotions on Social Media'. For example, under the guidance, financial products must be marketed in a way that allows them to be easily understandable, content must explicitly state that the value of investments is variable and appropriate risk warnings must be present. As is the case for many high-risk products, the regulatory landscape is heavily supported by legislation. For example, the Financial Services and Markets Act 2000 imposes strict restrictions on financial promotion by those not authorised by the FCA. 

Enforcement

Where the ASA identifies marketing content that falls short of the expected standard, it’ll work with the influencer and the brand to ensure the content is removed. For example, George Baggs, a 19-year-old TikToker recently partnered with HQD Tech, an e-cigarette brand. The partnership involved a series of social media posts. Per the CAP Code, advertising unlicenced, nicotine-based cigarettes is prohibited, and those using e-cigarettes in marketing can’t be under 25. As such, Baggs and HQD were found in breach and were required to work with the ASA to remove the content.

Further, where content is found to be in breach of guidelines, the ASA will publicly list the outcome of any rulings and a list of non-compliant online advertisers and influencers on their website, which evidently doesn’t bode well reputationally. Recent rulings highlight businesses that have partnered with influencers who’ve not acted in a regulatory compliant manner include The Savoy, Global Brands Ltd and The Skinny Food Co. Respectively, these rulings were for inadequate ad disclosure, the promotion of excessive alcohol consumption and issuing unsubstantiated nutritional claims.  

The ASA may pursue further sanctions, including posting targeted ads warning consumers regarding a brand's conduct, ensuring certain trade privileges or recognitions are revoked or subjecting brands to a pre-publication vetting process. If these sanctions don’t suffice, the matter will be referred to Trading Standards or the Competition and Markets Authority which might take legal action including prosecution.

What action should businesses take?

Ultimately, given that responsibility for regulatory non-compliance is shared between the influencer and the business that partners with them, businesses should take time to ensure any content is regulatory compliant. Businesses should undertake due diligence on those they intend to work with, which could involve checking their previous regulatory compliance record. Further, a contractual agreement should be in place, not only covering key issues (eg, payment, deliverables, termination and specifying who has intellectual property rights to the content), but also addressing the need for content to be regulatory compliant by inserting relevant contractual terms.

More widely, businesses partnering with influencers should stay abreast of the current regulatory framework. For example, stricter enforcement actions are anticipated with the introduction of the Digital Markets, Competition and Consumer Bill expected to receive royal assent in 2024.

For businesses seeking to utilise influencer marketing, given that there are a range of user-friendly guides explaining the relevant guidelines, as well as reputable law firms now offering tailored legal services for this purpose, there’s no excuse not to be aware of and conform with the regulatory landscape.

Jessica Watts is a trainee solicitor in Womble Bond Dickinson's Bristol office.