Companies should be mindful of regulatory risks when engaging the services of finfluencers, writes 魅影直播 commissioner聽Cathie Armour GAICD.
Financial influencers, commonly known as 鈥渇influencers鈥�, can amass huge online followings. For some listed companies, finfluencer collaborations may seem like a fast, effective way to promote issued securities to the next generation of young retail investors. However, companies should be cautious when engaging finfluencers 鈥� as part of their promotional initiatives generally, or in connection to corporate transactions. If you鈥檙e approached by a finfluencer seeking to collaborate, or you鈥檙e considering reaching out to one, make sure you do your due diligence as they may be contributing to your regulatory risks.
Unlicensed advice
Financial advice may be 鈥済eneral advice鈥� or 鈥減ersonal advice鈥�. Only qualified and licensed financial advisers or financial counsellors can provide it by law. It can鈥檛 be provided by individuals or corporations who don鈥檛 hold an Australian Financial Services (AFS) licence, or who aren鈥檛 authorised representatives of an AFS licensee.
As most finfluencers do not hold an AFS licence, they are not subject to the requirements that apply to licensees, including:
- Having adequate arrangements to manage conflicts of interest
- To provide financial services efficiently, honestly and fairly
- To meet education standards.
If a finfluencer chooses to remain unlicensed, and is found to be running a financial services business without having an AFS licence or being an authorised representative of an AFS licensee, they may be in breach of the聽, which carries significant penalties.
If a corporation engages a finfluencer who breaches the law by providing unlicensed financial advice, the corporation may also be in breach under section 79 of the聽Act.
Conflicts of interest
A finfluencer may be collecting remuneration from multiple sources simultaneously. They may be generating income from content clicks or views, which may give rise to a conflict of interest or result in advice that鈥檚 not in consumers鈥� best interests. Finfluencers may also be sponsored by other corporations to produce specific online content.
If you enter into an arrangement with someone who is carrying on an unlicensed financial services business, you may be breaching the聽Act. You may also want to understand whether the finfluencer has existing vested interests to promote other financial products and services in case there鈥檚 a conflict of interest or risks to your organisation.
Market misconduct
ASIC is seeing a rise in attempted market misconduct, such as 鈥減ump and dump鈥� schemes, where promoters buy shares in a company and then start an organised program of increasing, or 鈥減umping鈥�, the share price. They may do this via finfluencers, social media or online forums to generate a sense of excitement. As more people buy in, its value rises and other traders latch on, further boosting the price. The promoter then sells 鈥� 鈥渄umps鈥� 鈥� its stake in the now-overvalued security, causing its value to collapse.
ASIC monitors the market for this activity and will act when it sees extreme price movement. However, it is important for companies to be aware of these types of misconduct-related risks and their potential for unintended consequences arising from finfluencer collaboration.
Protect your company
Certain social media platforms may have advertising guidelines and some finfluencers state that they self-regulate. Either way, the law still applies. Make sure to do your due diligence. Understand what products and services a finfluencer is providing and whether or not they are licensed.
ASIC is engaging with social media platforms and their moderators, as well as with finfluencers, about their responsibilities (including requirements under the聽Act) and the limits of acceptable promotion. We are also undertaking a review of selected finfluencers to understand their business models and how the financial services law applies to this activity.
Learn more about market participation and investing safely at聽.
This article was first published in AICD's聽magazine in November聽2021.