Social media influencers who discuss financial products and services online (also known as “finfluencers”) need to ensure they comply with financial services laws to avoid incurring substantial penalties and putting investors at risk. This article explores the key considerations outlined by ASIC.
Under the Corporations Act 2001 (Cth) it is an offence to carry on an unlicensed financial services business, with penalties including up to five years’ imprisonment for an individual and fines into the millions of dollars for a corporation.
The law also prohibits conduct that is misleading or deceptive in relation to financial products or services.
Discussing financial products and services online
In a recent survey ASIC found that 33 percent of 18-21 year olds follow at least one financial influencer on social media, and that 64 percent of young people changed at least one of their financial behaviours as a result of following a financial influencer.
ASIC’s information sheet sets out how financial services laws apply to finfluencers, as well as to Australian financial services (AFS) licensees who use these influencers.
Social media influencers need to take care in situations where they may be providing financial product advice, dealing by arranging, or engaging in misleading or deceptive conduct.
Financial product advice
If you present information in a way that conveys a recommendation that someone should (or should not) invest in that product or class of products, you could breach the law by providing unlicensed financial product advice.
An example of a statement that may constitute providing financial product advice is “I’m going to share with you five long-term stocks that will do well and which you should buy and hold”, as it may influence someone’s decision to buy specific financial products.
Dealing by arranging
Arranging for a person to deal in a financial product, such as buying or selling a financial product, is a financial service. As outlined in the Corporations Act, it is an offence to provide financial services without a licence.
An example of conduct that is likely to be dealing by arranging is promoting a link for your followers to access an AFS licensee’s trading platform to trade financial products, whereby you receive a payment from the licensee for each click-through resulting in use of the platform.
Misleading or deceptive conduct
An influencer does not need to be licensed to breach the misleading or deceptive conduct provisions of the Corporations Act.
Any statement you make should be true, accurate and able to be substantiated. If you make a prediction, such as a future return or level of risk, you must have reasonable grounds for supporting that prediction.
An example of a statement that is likely to be misleading is “Holding onto this share in the long term will generate significant returns and is just like depositing your money with a bank”. It is unlikely the “significant returns” claim can be substantiated, potential product risks aren’t explained or highlighted, and it gives the impression that the product is safe, which may not be true.
Issues for finfluencers to consider
Social media influencers who discuss financial products and services need to ask themselves:
- Do I need an AFS licence?
- Am I familiar with relevant regulatory guidance?
- Have I done my due diligence on people who are paying me (including non-monetary benefits)?
AFS licensees who use finfluencers
If you are an AFS licensee who uses finfluencers, you may be liable for misconduct that they engage in. You need to ensure that you:
- Do your due diligence (including ensuring they are adequately trained and complying with the financial services laws).
- Have appropriate risk management systems and monitoring processes.
- Have sufficient compliance resourcing to monitor finfluencers.
- Consider design and distribution obligations.
Finfluencers run the risk of contravening the Corporations Act if they provide unlicensed financial advice or services, or if they engage in misleading or deceptive conduct. AFS licensees who use finfluencers may be liable for their misconduct.
Penalties include up to five years’ imprisonment for an individual and fines into the millions of dollars for a corporation.