22/11/2022Influencer Marketing: A Legal Update for the Direct Selling Industry
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15/07/2021
Our latest direct selling sector briefing focuses on the guidance notes about advertising by multi-level marketing companies (MLMs) that were recently published by the Advertising Standards Authority (ASA).
The Advertising Standards Authority (ASA) is the independent regulator responsible for monitoring and enforcing compliance with the UK’s Advertising Codes, primarily the UK Code of Non-Broadcast Advertising and Direct & Promotional Marketing produced by the Committee of Advertising Practice and known as the CAP Code.
The ASA frequently publishes guidance notes on aspects of the CAP Code and related matters and in June 2021 it published a pack of guidance notes about advertising by multi-level marketing companies (MLMs).
Whilst MLMs are subject to the CAP Code in the same manner as any other advertisers, this is the first time that the ASA has issued guidance specifically to MLMs. Why this new focus on MLMs? The ASA’s media release and the guidance notes themselves emphasise that the guidance notes are simply a reminder of the rules (“How to #boss multi-level-marketing ads with these top tips” and “It’s important to remember that posts related to either selling a product, or promoting an opportunity for others to join the business, are advertising and subject to the CAP Code”). However, the ASA also directly contacted a number of MLMs enclosing the guidance notes and giving notice that “We have recently been monitoring recruitment ads for MLM companies on social media and noted a number of claims and practices which are likely to fall foul of our rules. In particular, we have found potentially misleading claims in relation to earnings/incentives and job descriptions”.
The timing of this ASA monitoring and the publication of these guidance notes is no surprise given both the increasing use of social media by direct sellers and the recent focus by the ASA on CAP Code compliance by social media influencers. Whilst MLMs may not regard their direct sellers as social media influencers, because they usually do not fit the classic image of a social media influencer as a celebrity with thousands of followers, in the ASA’s eyes (and in legal terms) they are basically the same – they are both individuals seeking to influence consumers’ buying decisions in circumstances where consumers may not readily appreciate their association with the relevant company/products/services.
The CAP Code, and the ASA’s monitoring and enforcement role, covers non-broadcast advertisements, sales promotions and direct marketing communications and this includes: advertisements in newspapers, magazines, brochures, leaflets, circulars, mailings, emails, text messages (SMS and MMS), catalogues, follow-up literature, and other electronic or printed material; posters and other promotional media in public places; advertisements in non-broadcast electronic media, including online advertisements in paid-for space (including banner or pop-up ads and online video ads); paid-for search listings; preferential listings on price comparison sites; viral advertisements; in-game advertisements; commercial classified ads; advertisements distributed through web widgets and online promotions and prize promotions; and advertisements and other marketing communications by or from companies, organisations or sole traders on their own websites, or in other non-paid-for space online under their control, that are directly connected with the supply or transfer of goods, services, opportunities and gifts.
So, in short, the CAP Code applies to almost all advertising and marketing communications from MLMs and their direct sellers.
The ASA’s new guidance notes highlight the following matters.
The ASA’s pack also included factsheets for MLM sellers for three of the most popular and/or complex sectors the ASA sees advertised by MLMs, namely cosmetics, food supplements, and CBD products.
None of these highlighted matters should come as a surprise to MLMs and none of the guidance notes do any more than remind MLMs of the existing CAP Code requirements – no new law here – but MLMs should pay attention to the fact that the ASA has recently been monitoring recruitment ads for MLM companies on social media and has thought it timely to issue these guidance notes to MLMs.
It may or may not be coincidental timing that on 7 July 2021 the ASA also published its ruling on a number of complaints of CAP Code breaches made against a US-based MLM named Pruvit Ventures in relation to the website content and Instagram posts of a number of its promoters. The ASA upheld all of the complaints made including complaints of unlawful medicinal claims and unlawful health claims, and emphasised in its ruling that “as the direct beneficiaries of the marketing material … [Pruvit was] jointly responsible for the ads and their compliance with the CAP Code.”
MLMs should appreciate that, whilst the ASA does not have the power to levy fines for CAP Code breaches, it can apply a number of practical sanctions including directing (asking) publishers and other media owners not to accept future advertising from an advertiser, and publicly ‘naming and shaming’ the advertiser, and, if an advertiser fails to comply with an ASA ruling, refer the matter to Trading Standards who can prosecute for non-compliance with the legislation underlying the CAP Code, primarily the Consumer Protection from Unfair Trading Regulations 2008. MLMs who are members of the UK Direct Selling Association should also be aware that compliance with the CAP Code is compulsory for DSA members under the DSA’s Code of Business Conduct.
For any MLMs who may not have CAP Code compliant advertising or social media policies in place, the guidance notes should be taken as fair notice that now would be a good time to put their house in order.
Disclaimer: We at Memery Crystal (and our parent company RBG Holdings plc) support and encourage free/independent thinking in relation to issues which are sometimes considered to be controversial subject matters. However, the views and opinions of the authors of articles published on our website(s) do not necessarily reflect the opinions, views, practices and policies of either Memery Crystal or RBG Holdings plc.
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