The digital native generation has long reached maturity. Many millennials (and those older and younger than millennials) use online platforms for trading and investment and are increasingly turning to social media for advice, including from so-called “finfluencers” (financial influencers) operating on platforms such as YouTube, Instagram and TikTok.
The record number of first-time and online traders in Australia during the pandemic has catapulted finfluencers into ASIC's spotlight. In its 16 March 2021 media release, ASIC cautioned first-time traders who might rely on claims made in advertisements and on social media. It noted that trading misinformation was becoming more common, as was the practice of companies to pay promoters to post favourable comments to lure inexperienced or first-time traders.
So, are finfluencers falling foul of the Australian Financial Services Licence regime?
Australian Financial Services Licence regime
A person providing advice about financial products such as shares, bonds, superannuation, interests in managed investment schemes or insurance must hold an Australian Financial Services Licence. Whether a finfluencer is providing financial product advice turns on whether they make a recommendation or a statement of opinion intended to influence a person in making a decision in relation to a particular financial product, or whether that could be regarded as intended to have that influence.
The licensing regime applies to persons who ‘provide’ financial product advice which likely includes any corporation engaging the finfluencer. According to ASIC Regulatory Guide 36, the person who provides the advice will generally include the author of the advice as well as the principal for whom they act. It also includes any other person who endorses the advice, or any person who causes or authorises the provision of the advice.
There are some exemptions to the regime, such as to the provision of general advice through publically available sound, video or data recordings, but only where the sole or principal purpose of the transmission or recording is not the provision of financial product advice. A caveat to this exemption is that the person in these circumstances must state any remuneration they receive for providing the advice, or any pecuniary interest the person has if they would be likely to obtain a material financial benefit (or avoid a loss) if the advice were acted upon.
There are significant penalties for giving financial advice without a licence:
- for a criminal offence, individuals face up to five years' imprisonment and/or a fine of up to $133,200; and
- the civil penalties include a fine for individuals of up to $1.11 million, or three times the benefit obtained/detriment avoided.
The fines are higher for corporations giving financial advice without a licence.
What, then, for finfluencers?
Given the broad definition of "financial product", courts have recognised the growth in technology, and the ways that financial product advice might reach consumers. In one decision, an Australian court recognised that a website with recommendations on buying, selling or holding US securities was capable of constituting a “financial product” for the purposes of the licensing regime. In addition, courts have been willing to accept that the provision of financial product advice can occur on websites, at seminars and events, as well as on social media, such as Facebook pages. In other words, financial product advice can be given on Instagram, TikTok, and other online platforms.
In December last year, ASIC noted that it was undertaking a range of surveillance and investigations in relation to unlicensed individuals and corporations. More recently, ASIC Chair Joe Longo told the Parliamentary Joint Committee on Corporations and Financial Services that the interaction of social media, where people get their advice, and the basis upon which people make financial decisions is “an area of great concern”. ASIC Commissioner Cathie Armour said the regulator was also concerned about people potentially giving financial product advice online without a licence, and earning a reward through commissions from giving that advice.
Given ASIC’s comments and the broad definition of financial product, finfluencers will need to tread carefully. For those marketing themselves as financial experts, it is difficult to see how their posts could fall within the video recording exemption identified above. Finfluencers would also do well to ensure they do not breach the misleading and deceptive conduct provisions of the Corporations Act and ASIC Act in their posts.
Final word on finfluencers
Finfluencers, and any companies which engage them, walk a fine line between making recommendations on particular financial products and providing general information that does not constitute financial product advice. Caution is therefore clearly required for those engaging in the provision of financial information on social media given ASIC’s current focus on online communication and unlicensed activities. Corporations should similarly adopt a cautious approach when considering engaging finfluencers for advertising their financial products or services.