Regulators home in on finflueuncers

In November 2024, IOSCO published a consultation report on “finfluencers” (the IOSCO Consultation Paper) adding to a growing focus from regulators across the globe on the role of so-called finfluencers. Finfluencers are social media personalities who post information on investing on platforms such as TikTok, YouTube, Facebook or Instagram.

This article sets out how regulators around the world are reacting to the risks posed (in particular to retail and younger investors) by:

• finfluencers; and
• the firms that use them (or whose products/services are promoted).

An increasing challenge for regulators relates to cross-jurisdictional issues.  Issues may arise where firms using finfluencers are acting on a cross-border basis for example using digital platforms.  The cross-border angle is an area we are closely watching at aosphere.

The focus on finfluencers ties in with a wider trends with regulators focused on enhancing retail investor protection more generally as well as addressing the particular risks posed by crypto-assets. One of the proposals on marketing communications (as part of the adoption of the European Union’s retail investment package in May 2023) included requirements to protect retail investors from misleading marketing by ensuring that investment firms are fully responsible for the use of their marketing communications including where made via social media or via other third parties, including finfluencers.

What are regulators doing?

In the United Kingdom in March 2024, the FCA published final guidance on financial promotions made via social media.  The guidance includes considerations relating to the use of finfluencers.  In relation to overseas firms in particular, the FCA noted that it has seen harm occurring where UK consumers click on a financial promotion and are directed to an unauthorised non-UK entity, but the consumer still believes they are engaging with an FCA-regulated firm.  The FCA highlighted that it expected firms to have in place proper systems and controls to mitigate the risk that UK consumers are directed to the website of an unregulated overseas group entity which is not compliant with the financial promotion restriction, or which may involve the unregulated overseas person carrying on regulated activity with or for the UK consumer.

In Germany in October 2024 BaFin flagged that there was a lack of awareness of paid content and advised caution when it comes to investment recommendations on social media. A BaFin survey carried out in May 2024 revealed that more than half of investors from Generation Y and Z consider social media to be a reliable source of information about finance and 60 per cent consider it a good alternative to professional advice.  Finfluencers do not always have to disclose who is paying them for their recommendations and how much they earn from commissions and other sources. In addition, many young investors are completely unaware that finfluencers routinely receive payment for their recommendations.

This focus on disclosure of remuneration was also highlighted in Chile where in October 2024, the CMF published a consultation on a draft regulation.  A requirement for disclosure of compensation paid to finfluencers providing investment advice through social media was included as one aspect of the consultation.  

Additionally in the European Union in a discussion paper on the digitalisation of retail investment services and related investor protection considerations, one of ESMA’s recommendations was on the use of finfluencers.  ESMA stated that firms should ensure that the information provided through ‘affiliates’ (e.g. finfluencers and their affiliate marketers) is compliant with MiFID II requirements, have policies and procedures in place for working with and monitoring affiliates and wherever someone such as a finfluencer is remunerated to disseminate marketing/advertising, this should be prominently stated.  

In India, SEBI has gone one step further and in a public consultation  out until 27 December 2024, proposes to ban regulated entities from engaging with finfluencers.

Regulators have also been concentrating on publishing guidelines or codes of conduct and training to ensure that finfluencers are aware of the rules that apply.  For example, in Australia, ASIC issued an information sheet setting out what financial services laws apply when discussing financial products and services online.  In France, the Ministry of Economy published a code of conduct to inform finfluencers of the legal framework applicable to them.  The AMF and ARPP have also collaborated to design a training module for finfluencers. The AMF in The Netherlands included a set of guidelines to remind finfluencers of the rules for online posts on investing.  In Canada, the CSA is encouraging all Canadians to verify their sources of investment information and to not be “finfluenced”.

Enforcement actions

There has also been an increase in the number of enforcement actions taken by regulators around the world.  Some of the particularly high-profile actions include the following:

United States

• April 2024 - FINRA announced that it had fined M1 Finance LC $850,000 for social media posts made by influencers on the firm’s behalf that were not fair or balanced, or contained exaggerated, unwarranted, promissory or misleading claims.  
• March 2023 - the SEC announced that it had charged eight celebrities for illegally touting crypto asset securities without disclosing that they were compensated for doing so and the amount of their compensation.

United Kingdom

• May 2024 - the FCA brought criminal charges against nine finfluencers for promoting a foreign exchange trading scheme relating to contracts for differences.  
• October 2024 - the FCA announced it was interviewing twenty finfluencers under caution for touting financial services products illegally and it had issued 38 alerts against social media accounts operated by finfluencers which may contain unlawful promotions. 

ISOCO recommendations

The IOSCO Consultation Paper proposes a number of good practices for regulators, finfluencers and the firms that use them including the following:

• Regulator clarity and oversight.  IOSCO have suggested specific guidelines on how regulatory frameworks apply to finfluencers and enhancing monitoring and enforcement capabilities.
• Conflicts of interest detection, disclosure and management. Finfluencers should disclose all material and potentially material conflicts of interest such as financial incentives or affiliations with financial products.
• Enhanced disclosure and transparency.  Regulators could require the use of standardised disclaimers and clear concise disclosures by finfluencers to help investors understand the nature of the content they are consuming.
• Proactive investor and finfluencer education.  IOSCO emphasise the need for ongoing education for investors and finfluencers and suggest that innovative educational initiatives could be developed such as interactive online tools, public awareness campaigns, and collaborative projects with educational institutions.

Additionally, IOSCO offers a series of practical tips for retail investors that follow or engage with finfluencers and sets out that as the influence of finfluencers continues to grow, regulators could consider adopting these good practices to prioritise investor protection.  This focus on finfluencers and the firms that use them is here to stay.