Insights

ASIC’s Warning to “Finfluencers”, and AFSL Holders who Utilise Them

10/06/2022

What is the ASIC media release about?

The Australian Securities and Investments Commission (ASIC) has released an Information Sheet (INFO 269) targeted at social media influencers who discuss financial products or services online (often referred to as “finfluencers”) and Australian financial services licence (AFSL) holders who utilise them to promote their products. In short, ASIC has warned that finfluencers’ activities may potentially be in breach of the provisions of the Corporations Act 2001 (Cth) (Act), specifically the licensing and content requirements.

ASIC’s guidance has highlighted that the Act imposes significant penalties for providing unlicensed financial product advice, including up to five years’ imprisonment for an individual and financial penalties into the millions of dollars for a corporation, and has raised its concerns about payments from investment platforms to finfluencers for promoting links to their followers.

Background

ASIC is aware of the potential impact of finfluencers on consumer behaviour, and the recent information sheet has provided guidance on its concerns and views.

In 2021, an ASIC survey found that 33% of 18-21 year olds follow at least one finfluencer on social media. The survey found a further 64% of young people reported changing at least one of their financial behaviours as a result of following a finfluencer.

In this context, ASIC Commissioner Cathie Armour has stated, “The way investors access information is changing. 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.”

ASIC’s areas of concern

ASIC has identified three key areas finfluencers (and AFSL holders who utilise them) need to be aware of, in terms of compliance with the financial services legal regime, as follows:

Providing financial product advice.
Dealing by arranging.
Misleading or deceptive conduct.

Providing financial product advice

Under the law, financial product advice is a recommendation or statement of opinion which is intended to influence, or which could reasonably be regarded as being intended to influence, a person in making a decision in relation to financial products.

As ASIC has noted, factual information that describes the features or terms and conditions of a financial product (or a class of financial products) can be shared with others without providing financial product advice. However, if such factual information is presented in a manner that conveys a recommendation that someone should (or should not) invest in that product or class of products, then this may constitute financial product advice.

Importantly, ASIC has specifically highlighted that finfluencers who receive benefits or payment for their commentary in relation to financial products are more likely to be construed as providing financial product advice because it indicates an intention to influence the audience.

ASIC has provided a number of examples to illustrate the regime, as follows:

“I’m going to share with you five long-term stocks that will do well and which you should buy and hold.”

In ASIC’s view the above:

intends to influence someone’s decision to buy specific financial products;
provides an opinion about these products; and
is likely to be financial product advice.

“ETFs will make you a guaranteed positive return.”

In ASIC’s view the above:

provides an opinion that a positive return is guaranteed on a class of products;
is likely to be financial product advice; and
is likely to be misleading.

“You can invest by buying shares – this means you are investing in a company and you get to vote on the company’s management and potentially earn dividends”.

On the other hand, in ASIC’s view the above:

is a description of different types of financial products, with no implied recommendation that one is better than another; and
is unlikely to be financial product advice.

Dealing by arranging

Under the law, arranging for a person to deal in a financial product, such as buying or selling a financial product, is a financial service. Whether or not one is construed as arranging for another to deal in a financial product will depend on the extent of involvement in effecting the transaction. For example, merely providing the names and details of AFSL holders that have a platform to trade financial products is unlikely to constitute dealing by arranging.

ASIC has provided a number of examples to illustrate the regime, as follows:

“You promote a link for your followers to access an AFS licensee’s trading platform to trade financial products. It’s a unique link that can’t be accessed anywhere else. You receive a payment from the licensee for each click-through resulting in use of the platform. People that access the link also receive a benefit when buying the products because of your unique link.”

In ASIC’s view the above means:

you’re actively involved in making the transaction happen;
the unique link benefits you and adds value for your followers who access the link;
this is likely to be dealing by arranging.

This example highlights ASIC’s focus on the presence of remuneration or benefits from the product issuer or provider, in the context of the finfluencer’s activities.

“You provide the names and details of AFSL holders that have a platform to trade financial products.”

On the other hand, in ASIC’s view the above means:

no further involvement in any subsequent transaction; and
this is unlikely to be dealing by arranging.

Misleading or deceptive conduct

Conduct in relation to financial products or services which is misleading or deceptive, or is likely to mislead or deceive, is prohibited. Any statement made must be true, accurate and capable of being substantiated, and any prediction made must have reasonable grounds to support it. Importantly, the presence or absence of an intention to mislead is irrelevant, as ASIC has noted what is of relevance is the overall impression created by a finfluencer’s post, and whether it is in fact misleading to (or is likely to mislead) someone who views it.

ASIC has provided a number of examples to illustrate the regime, as follows:

“Holding onto this share in the long term will generate significant returns and is just like depositing your money with a bank!”

In ASIC’s view the above means:

it is unlikely the ‘significant returns’ claim can be substantiated;
potential product risks aren’t explained or highlighted;
gives the impression that the product is safe, which may not be true; and
this is likely to be misleading.

“Trading in this derivative is a risk-free way to make a quick profit on the side – I made $$$$ from trading these alone!’”

In ASIC’s view the above means:

trading being “risk free” is likely to be misleading even if the comment about how much money was made could be substantiated; and
this is likely to be misleading.

“ETFs offer good diversification across different asset classes, though there are still risks that the market or sector that the ETF tracks will fall in value.”

On the other hand, in ASIC’s view the above means:

risks and benefits are mentioned with similar prominence; and
this is unlikely to be misleading.

Issues for finfluencers to consider

ASIC has specified a number of issues finfluencers should consider, as follows:

Whether they require an AFSL (and that they should seek legal advice, if unsure).
Whether there is a risk they are breaching other consumer protection and financial services provisions, such as the design and distribution obligations (DDO) regime.
Whether they are familiar with relevant regulatory guidance issued by ASIC.
Whether they have undertaken due diligence on those who are paying them (including non-monetary benefits), emphasising that any remuneration or benefits received must be disclosed to their followers.

Issues for AFSL holders to consider

ASIC expressly notes AFSL holders may be liable for misconduct of finfluencers they utilise, and accordingly should do the following:

Undertake due diligence. If the finfluencer is acting on an AFSL holder’s behalf, and is, therefore, their “representative” for the purposes of financial services law, then this triggers other obligations on the part of the AFSL holder (including ensuring the finfluencer is adequately trained and is compliant with financial services law).
Implement appropriate risk management systems and monitoring processes to ensure finfluencers they have engaged are not providing unlicensed financial services.
Have sufficient compliance resources to monitor finfluencers they engage.
Consider if a finfluencer has been engaged to promote a financial product that is subject to DDO, and if so then whether they (i.e., the AFSL holder) have taken reasonable steps so that the finfluencer only promotes the product to consumers within the designated target market.

How we can assist

It is important that finfluencers look at the overall impression and circumstances of their content. From a finfluencer perspective, it is important to consider whether the content and revenue generated from that content triggers the requirement to hold, or to be covered by, an AFSL. From an AFSL holder’s perspective, it is important to consider whether a finfluencer’s reach and content is appropriately monitored and supervised to ensure that there is no harm to the end client. Note that ASIC takes enforcement action where it is in the public interest to do so.

Accordingly, we are able to assist both finfluencers and AFSL holders to navigate the financial services law to ensure that any content is provided in a fun and engaging manner whilst also having regard to the various obligations of the law.

For more information, please contact Brendan Ivers, Erik Setio and James Crinion.