Last week, the Competition and Markets Authority (CMA) announced that it has launched an investigation into influencers who fail to disclose that they were compensated to post content on behalf of brands.

“Social media stars can have a big influence on what their followers do and buy. If people see clothes, cosmetics, a car, or a holiday being plugged by someone they admire, they might be swayed into buying it,” George Lusty, the CMA’s Senior Director for Consumer Protection, stated. “So, it’s really important they are clearly told whether a celebrity is promoting a product because they have bought it themselves, or because they have been paid or thanked in some way by the brand.”

In the UK, under the Consumer Protection from Unfair Trading Regulations 2008, it is unlawful for influencers to post content that they were paid by a brand to promote without making it clear to consumers.

Similar rules exist in other jurisdictions, including the US.

Violations of these rules are widely assumed to be rampant, but determining just how big the problem is, and whether compliance is improving, is for obvious reasons difficult.

On one hand, a study by influencer marketing firm Buzzoole found that the use of #ad and #sponsored tags on Instagram posts has increased by 44% in the first half of 2018, which could indicate that more influencers and brands are adhering to disclosure rules.

On the other hand, given that spend on influencer marketing campaigns continues to increase significantly, it’s also entirely possible that undisclosed posts are growing faster than disclosed posts, in which case the disclosure problem would only be getting bigger.

Further complicating matters is the fact that, according to reports, some influencers have been spotted using alternative tags, such as #sp and #spon. These alternative tags are unlikely to be deemed compliant, but are ostensibly being added to ensure that influencers using them can make the argument that they were trying to comply.

While some influencers, like Made in Chelsea star Louise Thompson, have been called out for not following the rules, examples of meaningful penalties are still almost non-existent. Will the CMA change that?

That will obviously depend on the outcome of its investigation, which is seeking information from influencers on their commercial relationships and asking consumers to submit their experiences related to purchases they made after seeing social media postings.

But the CMA also acknowledged that it already has examples of probable violations, so it’s not unreasonable to assume it has some idea of the scope of the problem and has contemplated the kinds of enforcement actions that might be taken.

Brands have good reason to be concerned about compliance beyond official penalties

The stakes are high for brands. After all, if the CMA cracks down harshly on influencers, it will obviously have the potential to negatively impact brands, some of which are now dedicating substantial portions of their marketing budgets to influencer marketing.

For example, Tiege Hanley, a retailer specializing in mens’ skincare products, recently revealed that a whopping 40% of its marketing budget goes to influencer campaigns. Among the reasons: it has found that social content can drive sales even months after an influencer posted it.

Not only could a crackdown dent the market as brands and influencers would be forced to adopt better compliance controls, it could also amplify negative buzz around influencers and influencer marketing in general.

Already, there are indications that consumers are growing wary of sponsored posts and the like. A study conducted by Bazaarvoice and Morar Research found that nearly half of the 4,000 UK consumers it polled are “fatigued” by repetitive influencer content. Even greater percentages – over 50% in each instance – said they felt influencers were taking advantage of impressionable people, were publishing content that was “too materialistic”, and “misrepresented real life” with their activities.

Similar perceptions are being observed around the world, including in China.

The bottom line: it appears that influencers might be facing a real crisis of confidence, in which the trust they have built with followers is dented by aggressive shilling coupled with a lack of transparency.

Such a crisis could make even the worst penalties the CMA is capable of imposing look modest, but fortunately for brands and influencers, many of the problem areas the CMA will be studying are problem areas that, if addressed, could help influencers and brands stave off an influencer-pocalypse.