New ASA guidance notes on advertising by MLMs

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.

• MLM posts are advertising: Most MLM companies have individual sellers or representatives who advertise their products on social media, along with posting opportunities for others to join the company. Sellers are reminded that where they post content that falls within the remit of the CAP Code, they will be considered as the advertiser, and will be responsible for that content complying with the CAP Code.
• Recruitment Ads: Social media posts encouraging others to join an MLM are likely to be viewed as recruitment advertising by the ASA. These also need to follow specific rules. For instance, any earnings claims marketers make in their recruitment ads need to be representative of what the average person can earn. CAP understands that, generally, those partaking in MLM opportunities are likely to earn differing amounts, and so would advise against quoting any direct figures in ads. Claims such as “you can earn a profit” are likely to be acceptable, provided the seller can prove that the average person can make some sort of “profit”. Furthermore, sellers should also ensure that they include all material information in their ads – that is, all of the information someone would need to know in order to make an informed decision about whether to join the MLM themselves. This means making clear (for example) the nature of the opportunity, joining fees, starter kit fees, etc.
• Product Ads: MLM companies can sell a variety of goods and services, from beauty products to food supplements to party supplies, and sellers need to ensure that they hold evidence to substantiate any objective claims they make in their ads. However, there may be rules around particular products that also need to be adhered to. Sellers should ensure that they are aware of any rules surrounding the products they are selling, as they are responsible for their own ads. If the product is intended to be ingested (like supplements or oils) then the ads will be subject to the Food rules. Take care when making claims about food products as even stating ‘great for helping you stay alert’ or ‘it’s natural and healthy’ can be a problem if they are unauthorised. Marketers will also need to be careful about making medicinal claims about a product. Claims that a cream can reduce acne, for example, are likely to be seen as medicinal, and as such the product will need to be licensed by the MHRA. Similarly, cosmetic claims like ‘anti-aging’ will require the marketer to have robust evidence to support them.
• Testimonials: Any testimonials that are used in MLM ads are the responsibility of the seller – and the seller needs to hold documentary evidence that a testimonial or endorsement used in a marketing communication is genuine and hold contact details for the person who, or organisation that, gives it. Furthermore, sellers need to hold evidence for any objective claims made in any testimonials, as they have adopted and incorporated the testimonial into their advertising.
• Customer Reviews: Reviews from customers are a great way to advertise but remember that bringing this into your advertising (even by just sharing it on social media) means that you are responsible for what has been said. That means, marketers should take care that no claims that would be unacceptable in their own ads, are present in a testimonial. Any claims likely to be seen as objective by a consumer, will require substantiation.
• Promotions, giveaways & prize draws: Sellers are reminded that any promotions, including competitions, prize draws and giveaways, need to adhere to Section 8 of the CAP Code. For example, sellers need to ensure that they include all significant conditions for their promotion in the actual ad (such as a closing date, geographical or age restrictions, and how to enter).

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.

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