On 1 December 2022, FTI Consulting EU, and I-Com (the Institute for Competitiveness) will host the roundtable “Protecting EU consumers in the digital age” to discuss the Commission’s “Digital fairness – fitness check on EU consumer law” initiative.
The fitness check will evaluate three fundamental pieces of EU consumer policy legislation: the Unfair Commercial Practices Directive (UCPD), the Consumer Rights Directive (CRD), and the Unfair Contract Terms Directive (UCTD) to understand whether horizontal consumer law instruments remain adequate for consumer protection online, by looking at issues including dark patterns, personalisation practices, influencer marketing, marketing of virtual items and the addictive use of digital products, among others.
Ahead of the publication of the public consultation on the fitness check and in parallel with the 2nd Annual Digital Consumer Event, this event provides an opportunity for relevant stakeholders to discuss consumer protection in the digital environment.
This short article on Influencer Marketing is part of a series of publications that FTI Consulting, and I-Com are developing to inform the public debate ahead of the event.
While no unique legal or academic definition exists, an Influencer can be defined as a content creator that has built up a strong community of loyal followers, usually on social media and video sharing platforms and engages with brands in various ways for paid promotion of their products and services. Influencer marketing is the act of leveraging influencers’ communities, their size and the trust of their followers to promote and communicate about brands or products. It is a rapidly growing segment of the advertising market with an ecosystem comprising influencers and their viewers, but also agents, advertisers, brands, social media and video sharing platforms and online marketplaces.
As influencers are part of the advertising industry, certain regulatory, co-regulatory and self-regulatory frameworks, as well as the EU consumers acquis apply to their content. EU and national consumer protection rules also apply to influencer marketing. However, at the EU level there is no specific legislation regulating influencer marketing. While the ability to differentiate advertising from editorial content is the main regulatory and self-regulatory principle applicable to any form of advertising, influencer marketing can easily blur the lines between paid advertising and editorial content. It can be difficult for users, especially younger followers, to identify what is a paid promotion, what is a personal endorsement and when does an influencer endorse a product for remuneration. Additionally, a piece of content can contain both paid promotion and unpaid endorsement.
Disguising commercial nature of content is prohibited by the Unfair Commercial Practice Directive (UCPD), which provides a general framework on commercial practices that infringe consumer protection. Under the UCPD, influencers are considered traders or persons acting on behalf of traders if they engage in paid promotion frequently. The 2021 updated guidance document on the interpretation and application of the UCPD clarifies the concepts and the application of the directive to influencers. It specifies, that the obligations to be clear about paid promotion, in particular under Article 7(2) UCPD, apply to traders regardless of whether they are the supplier of the products or not. The failure to declare a commercial element in a clear way in an influencer’s content, may amount to being considered a misleading practice.
The disclosure of advertising is also a principle of the E-Commerce directive, which requires that commercial communication and the natural or legal person on behalf of which the communication is made, are clearly identifiable on any information society service (video platforms for instance).
If the influencer operates as a seller by selling their own products, the Consumer Rights Directive may apply. It could apply regarding pre-contractual transparency obligations in the case of distance (online) contracts, formal requirements for distance contracts and rules on the right of withdrawal. Furthermore, the “Omnibus” Directive defines information obligations for online sellers, especially dealing with the obligation to specify the legal status of the seller. In addition, the recent reform of the Directive on the Provision of Digital Content and Services may apply if someone sells such content, complying with its requirements on compliance, seller’s liability, etc.
The Audio-Visual Media Services directive sets a number of rules related to advertising, which are also applicable to influencers who distribute their content on platforms such as YouTube since 2018. The rules include the definition of concepts of sponsorship, product placement and their clear identification as paid content. Additionally, specific rules are now applicable to video sharing platforms that must ensure that advertisings respect transparency obligations, are identified as such and are not shown to minors. These rules, while not directly impacting influencers, affect the marketing and communication strategies using collaborations with influencers.
The Digital Services Act addresses the challenges emerging with online market trends and complements other horizontal EU policies. It introduced transparency obligations for advertising displayed by the platforms, as well as rules on targeted advertising, ban on profiling children or using certain categories of personal data for targeted ads, traceability of traders, due diligence and enforcement. The DSA enhances the transparency requirements applicable to influencer’s commercial communications.
Additionally, several self-regulatory tools and best practice manuals have been published by advertisement self-regulatory bodies to ensure the application of advertisement industry standards, the main one being proper labelling and identification. Self-regulatory bodies provide advice on the definition of influencer marketing, editorial control, disclosure, identification of commercial communications and awareness raising.
The wide adoption of influencer marketing raises several issues related to fraudulent advertising from influencers. This includes the use of fake followers, promotion of problematic content (content promoting products legally forbidden from advertisement, such as alcohol, tobacco, plastic surgery), the use of false, misleading advertising and unidentified paid promotion.
Stakeholders hold a variety of key concerns about the impact of influencer marketing. Consumer representative bodies underline the negative impact on children and the lack of understanding of how influencer marketing works. Regulators, on the other hand, highlight the need for clear rules and identify issues with enforcement of the regulations considering an important amount of content as well as the important weight of the self-regulation. Recently the Polish Consumer Protection Authority adopted new recommendations on the tagging of advertising content by influencers on social media, asking influencers are to mark paid promotions in a legible, unambiguous way. Recommendations also provide technical guidance on tagging and practical examples of correct and incorrect tagging on several of the most popular social media platforms (these obligations, in particular, apply to any advertising materials for which the influencer receives material compensation).
In September 2021, the European Consumer Organisation (BEUC) published the report “Food marketing to children needs rules with teeth. A snapshot report about how self-regulation fails to prevent unhealthy foods to be marketed to children” shedding light on influencers on social media frequently entering into paid partnerships with brands to promote unhealthy food and beverages to children and teenagers. BEUC supports a complete restriction from HFSS food being marketed online at any time, calls for a ban on surveillance-based advertising for children and teenagers at the very least, and attention for vulnerability of both younger children and teenagers using the definition of a child as anyone under the age of 18 years old.
The European Parliament (IMCO) commissioned the study “The impact of influencers on advertising and consumer protection in the Single Market” published on 16 February 2022. The study describes the most popular and effective forms of online advertising. Taking into consideration the opportunities but also the issues connected to influencer marketing, it recommends balancing the need to encourage online commercial and non-commercial activities and not hinder online social interaction, with the need to ensure effective consumer protection. It calls for the expansion of existing consumer protection legislation to include: influencer marketing (also providing guidance to facilitate influencer compliance and consumer awareness). The support to national authorities in developing and using digital tools to monitor influencer marketing activities and ensure the enforcement of consumer rights is a second call to action. Finally, the respect of duties and obligations by all market actors (including brands and platforms) is essential.
Authors: Sevara Irgacheva, Director at FTI Consulting Brussels and Silvia Compagnucci, Vice President at I-Com.
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FTI Consulting is an independent global business advisory firm dedicated to helping organisations manage change, mitigate risk and resolve disputes: financial, legal, operational, political & regulatory, reputational and transactional. FTI Consulting professionals, located in all major business centres throughout the world, work closely with clients to anticipate, illuminate and overcome complex business challenges and opportunities.
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The Institute for Competitiveness (I-Com) is a think-tank founded in 2005 by a group of scholars, professionals, and managers, with offices in Rome and Brussels. The objective of I-Com is to promote debates and analyses on competitiveness concerning innovation, in the Italian, European and international politico-economic contexts. The main areas of interest of I-Com are digitalisation, energy, innovation, health, and institutions.