Finfluencers: High risk, or high reward?
Financial influencers – finfluencers – focus on educating around areas such as investing, personal finance and equity/currency trading. They have direct, uninterrupted connections with millions of people, but how credible are they?
Finflencers, like Humphrey Yang – a former financial adviser from the US – are becoming increasingly popular on TikTok, YouTube and Instagram. Their content is creeping into the mainstream, but the helpful budgeting tips and tricks does comes with the ‘get-rich-quick’ promises and financial ‘advice’ that can be undeniably dangerous.
Finfluencers falling foul of the rules have hit the headlines in a number of well-publicised cases.
For example, Kim Kardashian found herself on the wrong side of an investigation by the US Securities and Exchange Commission. The celebrity had promoted the crypto-token EthereumMax on her Instagram account, but had not disclosed that she had received $250,000 for doing so. She agreed a $1.26m settlement with the regulator.
Following the collapse of cryptocurrency exchange FTX, a number of high-profile sports stars such as Tom Brady and Stephen Curry, were sued for promoting the exchange inappropriately.
In these cases, the individuals promoting the financial products are not subject experts. Their lack of in-depth knowledge represents a clear risk for those who act on their posts, while there are possible civil and legal sanctions for both the finfluencers who act improperly and the companies who engage them.
Interest from regulators
Such scandals and misinforming financial ads have turned heads of market watchdogs and regulators who are now paying more attention to ensure people receive financial information that is accurate, appropriate and balanced.
Earlier this year, the UK’s Financial Conduct Authority said it was working with other regulators to educate finfluencers about their mandatory responsibilities and urged them “to be clear about their obligations when advertising to consumers through their social media channels to avoid breaching the Financial Services and Markets Act 2000.”
If this kind of financial content can entice audiences to invest money they cannot afford to lose, or provide consumers with misleading financial advice, they could constitute a criminal offence and result in prosecution.
Similarly, the European Union’s Market Abuse Regulation requires those giving investment recommendations to present the information objectively and to declare personal interests or conflicts of interest.
In the US, finfluencers must also make their connection to the product or service they recommend clear.
On the other side of the world, the Australian Securities and Investments Commission has publicly declared its intention to come down firmly on unlicensed finfluencers found to be giving financial advice, with finfluencers facing up to five years’ imprisonment and corporations facing fines of over $1 million.
In this fast-moving area of financial guidance, advice and promotion, there are a host of evolving exposures for both finfluencers and financial corporations to consider.
More broadly, as the financial and media landscapes continue to shift towards digital, we can also expect regulation to keep pace, so it’s important to stay vigilant against evolving exposures.
Learn more about financial institutions, FinTech and media liability policies by CFC.