Navigating the finfluencer wave: a regulatory perspective

Published on January 8, 2025 by Nadiya Ahmed

The information age has promoted social media as a means of communication, with social media now being recognised as conveying learning and spreading awareness of products, and thus being used as an effective marketing tool. The entry of finfluencers amid this transformation has shed new light on the landscape. “Finfluencers” refer to ordinary people communicating via YouTube, X, LinkedIn, Instagram and Facebook on stock markets and sharing insights on their investment strategies and how they handle personal finances. This has led to the need for more stringent regulatory oversight of their actions, as there is always a risk of unsupervised financial advice being circulated.

The Financial Conduct Authority’s (FCA’s) and the US Securities and Exchange Commission’s (SEC's) perspectives on finfluencers:

To address these issues, the FCA has implemented the following:

• Underlined the need for finfluencers to engage in financial promotions that are fair, clear and not misleading.

• Compliance: Provided a framework for influencers to adhere to so their content complies with regulatory standards.

• Developed a checklist detailing finfluencers’ responsibilities in terms of compliance with guidelines. The FCA is taking a proactive approach to ensure that finfluencers have the resources and information they need to make their content informative rather than simply compliant with regulation.

The SEC has enforced guidelines relating to financial advice and promotions for years. The following relate to influencers:

• Greater enforcement of the need for financial advice and promotions to comply with the current regulatory framework.

• Scrutiny of finfluencers to ensure they do not circulate financial advice without being licensed to do so.

• Enforcing securities laws against corporate insiders and finfluencers whose advice does not meet regulatory standards, to ensure financial markets maintain integrity and to protect investors from bad ideas.

The FCA and the SEC are concerned about making sure that influencers operate legally, delivering financial information in an honest way to their audiences. As the FCA tries to direct finfluencers to comply, US regulators, led by the SEC, have been prosecuting leading accounts for violating regulations.

Both regulatory bodies seek to protect consumers and the integrity of financial markets, recognising the influence finfluencers wield.

Why are rules needed?

• Consumer protection and safety are of the highest importance to the regulators and should not be compromised. Consumers are vulnerable and could be affected by misleading information.

• Keeping the market honest by providing the public with fair and the right amount of information would help consumers make informed decisions.

• To promote visibility and ensure consumers are provided with a balanced view on the products and services marketed.

• Uncatalogued financial advice and unsolicited offers would lead to market manipulation. Establishing accountability would reduce this.

• Enhancing communication and awareness on the ground would help consumers make informed decisions.

Consequences:

• Hefty fines: Companies and individual finfluencers who breach rules or engage in other types of market abuse will be fined. The amount of the fine would be determined by the respective regulator and could range up to millions of dollars.

• Reputational risk: Public announcements of such disciplinary action would have a negative impact on the firm’s reputation.

• Loss of trust: Loss of authorisation status would lead to loss of investor trust in the firm or individual concerned.

• Licence revoked: The respective regulator may remove authorisation status due to the breach or misconduct, resulting in dire consequences for the firm.

• Legal proceedings. The regulator may also apply for an injunction order or restitution order against the firm or individual concerned.

Case study:

The SEC imposed a USD1.75m fine on an investment management firm for not disclosing a social media influencer's promotional role and a fee structure linked to fund growth when launching its ETF. The firm had omitted disclosing these details to the ETF's board, obstructing the board's evaluation of the fund's advisory contract.

Consumer duty

The FCA’s new Consumer Duty came into force on 31 July 2023. It is designed to apply to all consumer-facing financial institutions including influencer marketing. Such institutions and individuals are to obliged to ensure delivery of transparent, consumer-friendly material, refrain from promoting high-risk or inappropriate financial behaviour and provide clear information in good faith (where vulnerable consumers are concerned, or when offering advice on and endorsing a financial product). The regulator states that finfluencers should consider incorporating these tenets in their governance and business models to ensure care and foster consumer trust.

How Acuity Knowledge Partners can help

We help compliance clients manage increasing demand on their teams by offering specific managed services solutions built on specialised skills and technology, and by delivering operational efficiency, resilience and considerable cost savings. At times of high workload, our professionals who specialise in marketing compliance would evaluate marketing collateral and social media posts and help identify discrepancies between current marketing strategies and the new Marketing Rule.

Sources:

• gov | SEC Charges Van Eck Associates for Failing to Disclose Influencer’s Role in Connection with ETF Launch

• SEC Charges Against Social Media Influencers: The SEC charged social media influencers for fraudulent activities, including false

• Finfluencers and the FCA: A review of the proposed financial promotions on social media guidance | DWF Group

• Consumer Duty implementation: good practice and areas for improvement | FCA

• Financial Services and Markets Act 2000 (legislation.gov.uk)

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