In today’s technological age, and two years into social distancing, Zoom meetings and working from home, more people than ever are engaging with social media as a source of advice and knowledge.
The rise of influencers and finfluencers
Financial influencers (‘finfluencers’) have seen an explosion in popularity on social media, with younger generations turning to these finfluencers for guidance on anything from purchasing a property to investing in shares. ASIC’s ‘Young People and Money – Survey Snapshot’ published in December last year found that a third of 18-21 year olds followed at least one finfluencer on social media and that 64% of young people had changed their financial behaviour due to following a finfluencer.
An influencer, as the name suggests, is someone who has an established audience and social influence over that audience. Influencers create and post content online to social media platforms such as Instagram, YouTube, TikTok or Reddit, and often collaborate with businesses to market a product or service in return for remuneration or other benefits.
Background to INFO 269
In response to the rise of finfluencers, on 21 March 2022, ASIC released an information sheet (INFO 269) outlining how the financial services laws apply to finfluencers and the Australian financial services (AFS) licensees that use them.
ASIC Commissioner Cathie Armour said, “it is crucial that influencers who discuss financial products and services online comply with the financial services laws. If they don’t, they risk substantial penalties and put investors at risk.”1
The publication of INFO 269 comes at a time when government bodies are looking to regulate the impact of new technologies on consumers, and the use of social media as a platform to convey information and as a sales channel. For example, in the therapeutic goods space, the Therapeutic Goods Administration introduced a new Therapeutic Goods Advertising Code on 1 January 2022, which prohibits paid and incentivised influencer testimonials and endorsements in the therapeutic goods space (for more detail, please see Addisons’ focus paper ‘New Therapeutic Goods Advertising Code takes effect on 1 January 2022’).
The financial services laws
The Corporations Act 2001 (Cth) (Corporations Act) requires a person who carries on a financial services business in Australia to hold an Australian Financial Services Licence (AFSL), be exempt from that requirement, or be appointed as an authorised representative of an AFS licensee. INFO 269 is a caution to finfluencers, and the AFS licensees that use them, to ensure that the online content they are producing, and the way they seek to promote products and services, is aligned with the law. It covers a range of issues, including:
- the AFS licensing requirements for those who carry on a financial services business, e.g. by providing financial product advice or dealing / arranging in a financial product (unless they are relying on an exemption or an appointment as authorised representative of an AFS licensee);
- the prohibition on misleading or deceptive conduct;
- the risk management, monitoring and compliance resourcing obligations of AFS licensees who use influencers; and
- the design and distribution obligations which apply to both financial product issuers and distributors.
It also puts finfluencers on notice that ASIC will take enforcement action if it is in the public interest to do so, including to protect investors from harm and to maintain market integrity.
Why are finfluencers at risk of contravening financial services laws?
A person provides financial product advice if they make a recommendation or statement of opinion which is intended to influence another person’s decision in relation to a financial product.
So the problem is written on the tin! Given the function of influencers is to influence their audience to behave in a certain way, and that making statements which could influence someone to make decisions in relation to financial products is “financial product advice”, there is real potential for an influencer’s role to put him or her squarely in the realm of providing “financial product advice”.
The relative ease and informality in which finfluencers are able to interact with their audience means that there is also greater scope for the posting of content without the same level of editorial control applicable to other media and/or without including the relevant disclaimers or using proper terminology.
Examples of influencers potentially providing financial services
INFO 269 give some examples of influencer activities that are likely to be categorized as financial services, which would require the influencer to have an AFS licence, be exempt from the requirement, or be authorised to provide those services as an authorised representative of another person who holds an AFS licence. These include:
- recommending financial products to an audience to “influence” their financial behaviour (e.g. to influence the consumer to buy that financial product), particularly where the influencer receives a benefit or payment for making the recommendation; or
- sharing a unique link to financial products or services in exchange for a benefit or payment (also known as ‘affiliate marketing’).
Be aware that these are examples only, and not an exhaustive list of potentially problematic behaviour.
What is not within the realm of providing financial services?
The case studies suggest that the following would not constitute providing a financial service:
- sharing tips on saving money and budgeting, without mentioning financial products or services; and
- providing details of AFS licensees that have a platform to trade financial products with no further involvement by the finfluencer in any subsequent transaction.
Misleading and deceptive conduct
ASIC’s warnings don’t stop there: finfluencers must also ensure that their content is not misleading or deceptive. Some examples of misleading and deceptive conduct include:
- providing a guarantee or statement about the performance of a particular financial product without ensuring that the content is accurate or balanced; or
- making a claim about a financial product or service which is untrue, inaccurate, unable to be substantiated or without reasonable grounds.
What is the issue for financial services businesses who engage influencers to promote them?
ASIC has warned that AFS licensees could be held liable for the misconduct of influencers they use. In the circumstances, AFS licensees should ensure that they have the appropriate systems in place to assess and monitor compliance by their influencers.
Additionally, AFS licensees should consider whether the use of influencers is compatible with their Design and Distribution Obligations (DDO). In a nutshell, the DDO regime requires financial products to be targeted at the appropriate class of consumers, taking into account their key attributes, including likely objectives, financial situation and needs, as set out in a ‘target market determination’ published by the AFS licensee.
So, if an AFS licensee intends to engage an influencer to promote a product that falls within the DDO regime, it would need to take reasonable steps to ensure that the influencer promotes the product in a way that reaches consumers in the target market only, and not a broader group of consumers.
In light of INFO 269, finfluencers and the AFS licensees who use them (who are obliged to train and monitor their finfluencers for compliance) should review and change their content if necessary to ensure that they are not in contravention of the relevant laws. If a finfluencer is providing financial services, they (and their associated AFS licensee) should ensure that the finfluencer has the necessary licence, exemption or authorisation to do so.
As the role of social media as a sales channel continues to grow, and as being a social media influencer is increasingly a potentially lucrative source of income, the risks of contravention of the law also grow. If you are a finfluencer, or in the financial services area and considering the use of a finfluencer, now is the time to have a close look to ensure your activities are on the right side of the line.
1 ASIC Media Release ‘22-054MR ASIC issues information for social media influencers and licensees’, 21 March 2022.