Giving financial advice without possessing a license is illegal in Australia, but unlicensed influencers are giving financial advice on social media, also known as finfluencers. Following repeated calls that governing bodies like Australian Securities and Investments Commission (ASIC) should be taking a harsher stance on finance influencers by stepping up monitoring and enforcement efforts last year, ASIC has issued an information sheet for finfluencers.
Background – finfluencers
Financial influencers, also known as “finfluencers”, can amass substantial online followings. For some listed companies, finfluencer collaborations may present as a quick and effective way to espouse issued securities to the next generation of retail investors. However, companies should be cautious when generally engaging finfluencers — as part of their promotional initiatives or corporate transactions. If a finfluencer approaches you to collaborate, or you are considering reaching out to a finfluencer, ensure that you do your due diligence, as they may be contributing to your regulatory risks.
Aggrieved Instagram, TikTok and YouTube influencers may discontinue their accounts after a closed-door briefing from the corporate watchdog warning them against paid promotions, sponsorships, or voicing opinions about investing on social media.
About 30 popular finance influencers attended an invitation-only briefing with senior officials from the ASIC to find out whether they could continue making a profit out of their social media posts considering the regulator’s stricter approach on unlicensed investment advice online.
ASIC warns finfluencers
The corporate regulator has warned social media influencers that they need a licence to bestow financial advice and will encounter up to five years in jail if they break this law.
In a new information sheet directed at so-called “finfluencers”, issued on Monday, the ASIC aimed at social media stock-tippers who promise significant profits or that the investments they recommend are as good as depositing money in the bank.
ASIC also warned influencers who earn money through affiliate links that send readers to online brokers that this may be considered providing a financial service, which also requires a licence.
Financial influencers wield significant power among younger people looking to invest, with an ASIC survey last year finding that a third of Australians between 18 and 21 followed one on social media. A further 64% reported changing their behaviour due to finfluencer posts.
Crackdown on finfluencers
Greg Yanco, the ASIC’s executive director of market supervision, said the regulator was closely monitoring a handful of popular finfluencers and expected them to make swift changes to their content.
Some finfluencers under close watch are earning five- or even six-figure salaries from promotional deals with licensed financial firms like share market and foreign exchange brokers or investing platforms or fees from paying subscribers and followers.
Under the law, financial advice encompasses any recommendation to purchase financial products such as units in a managed fund or securities in a listed company. Only individuals registered with ASIC and hold a financial services licence, or are authorised by a licensee, can provide advice.
Unlicensed financial advice can result in a penalty of up to five years in jail or fines of up to $1 million, Mr Yanco said. ASIC urges social media users to seek legal advice before posting content about investing, especially if they were earning revenue from the posts.
The comments followed the regulator’s release of an information sheet, warning social media users they are potentially breaking the law if they make misleading statements online or give financial advice without a license.
ASIC has issued various warnings about unlicensed financial advice over the past two years and, alongside the Australian Securities Exchange (ASX), has ramped up its monitoring of social media forums.
Finluencers – affiliate links
The official said that even discussing a vast range of financial products, such as “ETFs” or “shares” rather than specific assets, could be deemed financial advice and require a licence.
The public information sheet explicitly mentioned affiliate links because of ASIC’s assessment that this was a common profit stream for finfluencers and should not have been read as permission for other paid promotion activities.
ASIC has said it closely monitors the accounts of less than a dozen finfluencers and may seek to prosecute them. Penalties for unlicensed financial advice include five years in jail and $1 million fines.
‘No grace period’
While finfluencers have been scrambling to adjust their content and commercial models recently, the ASIC officials warned that any past content should be reassessed and any potential breaches modified or removed.
“Honestly, that could take years,” deplored one prolific YouTuber with 500,000 followers. He questioned whether old posts could be grandfathered or whether a grace period might be applied to allow changes to be made prior to ASIC enforcing action.
“There is no grace period,” an ASIC official stated. “That could undermine investor protections, and we’re not minded to do that.
“If [followers] think they’re receiving financial product advice from you, that is crucial. But, unfortunately, that’s exactly what people will be thinking in many situations. And that’s where you’re more likely to get yourself in trouble.”
“People aren’t going to stand outside the building [housing a billboard] because they’ve gotten advice about their financial affairs.”
Finfluencers – legal vetting
The finfluencers were also warned not to depend on “legal vetting” by platforms, fund managers or other commercial partners who might be paying them to promote their products.
“I would not assume that it has been tested and vetted and signed off by the licensees’ legal [team], that that might absolve you of any sort of obligations as well,” said an ASIC official. “That would be my powerful message: You have your obligations. “
While the meeting was cordial, with Mr Yanco noting ASIC had faced more “aggressive” questioning in other briefings, several finfluencers complained that the law was unfairly applied. Traditional media providers can often rely on an exemption to the financial advice laws.
“I’m taking away from this that we can’t get paid for anything,” said one attendee.
Others used social media to condemn the hard line being adopted by ASIC.
It is understood that several finfluencers invited to the briefing chose not to attend.
Unlicensed advice
Financial advice can be “general advice” or “personal advice”. Only qualified and licensed financial advisers or counsellors can legally provide financial advice. It cannot be provided by individuals or corporations who don’t hold an Australian Financial Services (AFS) licence or are not authorised AFS licensee representatives.
As most finfluencers do not possess an AFS licence, they are not subject to the stipulations that apply to licensees, including:
- Having sufficient arrangements to manage conflicts of interest
- To impart financial services efficiently, honestly and fairly
- To meet education standards.
Suppose a finfluencer chooses to persist unlicensed and is discovered to be running a financial services business without an AFS licence or being an authorised representative of an AFS licensee. In that case, they may breach the Corporations Act 2001 (the Act), which disseminates significant penalties.
If a corporation enlists a finfluencer who breaches the law by imparting unlicensed financial advice, the corporation may additionallybe in breach under section 79 of the Act.
Conflicts of interest
A finfluencer may be cumulating remuneration from multiple sources simultaneously. For example, they may be generating income from content clicks or views, leading to a conflict of interest or resulting in advice that’s not in consumers’ best interests. Other corporations may also sponsor Finfluencers to generate specific online content.
If you enter an arrangement with someone conducting an unlicensed financial services business, you may be breaching the Act. You may also want to recognise whether the finfluencer has existing vested interests to promote other financial products and services if there is a conflict of interest or risks to your organisation.
Market misconduct
ASIC is noticing a rise in attempted market misconduct, like “pump and dump” schemes, where proponents purchase shares in a company and then start an organised program of increasing the share price or “pumping”. The promoters may do this via finfluencers, social media or online convocations to precipitate a sense of excitement. As more people buy in, value rises, and other traders latch on, further boosting the price. The promoter then sells,”dumps”, its stake in the now overvalued security, causing its value to crumble.
ASIC surveils the market for this activity and will act when it sees extreme price movement. First, however, companies must be aware of these misconduct-related risks and potential unintended consequences from finfluencer collaboration.
Protect your company
Specific social media platforms may have advertising guidelines, and some finfluencers state that they self-regulate. Either way, the law still applies. So you must do your due diligence. Understand what products and services a finfluencer are imparting and whether or not they are licensed.
ASIC is communicating with social media platforms and their moderators and finfluencers regarding their responsibilities and requirements under the Act and the regulations of acceptable promotion. The regulator is also reviewing selected finfluencers to understand their business models and how the financial services law applies to this activity.
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