Financial influencers, or ‘finfluencers’, earn money by using digital channels, typically social media, to attempt to influence their audiences’ financial behaviours. They surged in popularity, particularly among investors, during the Covid-19 pandemic.
As one example, the UK’s Financial Conduct Authority (FCA) found in 2021 that 54% of new investors aged 18–34 used social media as source material when researching investing, with 17% specifically using social media influencers.
However, many finfluencer activities are possible breaches of compliance. For example, they make money sharing sponsored posts and from referral fees from financial services providers — but it’s not always clear when they have been paid by a brand to produce content. Additionally, many of them hold no professional financial advisory qualifications, even though they sometimes recommend risky behaviours and offer specific advice, while some deliberately or unintentionally promote scams.
Given the global nature of social media, this issue is not unique to the UK. As a result, regulators around the world are taking action to try and hold finfluencers, and the brands that use them, to account.
Exploratory regulatory actions
Regulators have started by trying to understand what finfluencers are and the impact they’re having. Their ability to take immediate and decisive action is hindered by the relative novelty of the use of social media to promote financial services products, as well as regulatory bodies’ lack of experience of the platforms being used.
As April Rudin, founder and CEO of global wealth marketing firm The Rudin Group, tells The Banker: “There’s a general lack of understanding of these social media platforms among regulators for a number of reasons. One is because they probably haven’t used them, and creating rules around a platform you haven’t used is problematic.”
Similarly to the FCA, the Dutch Authority for Financial Markets also conducted a study into finfluencers back in 2021. Among the issues of transparency, lack of qualifications and promotion of risky products mentioned above, it also found that while finfluencers make investing more accessible, they do not always put followers’ interests first. As a result, it issued a reminder to brokers and finfluencers of existing rules, and has stated it will continue to monitor such activities specifically.
The International Organization of Securities Commissions (Iosco), meanwhile, published its Report on Retail Distribution and Digitalisation at the end of 2022, based on extensive research. It also published measures that members should consider using when deciding on any new rules and how to enforce them.
The European Securities and Markets Authority, together with national regulatory bodies, is conducting a Common Supervisory Action throughout 2023 to review regulated firms’ marketing and advertising activities, specifically including their use of finfluencers. The aim is to see if existing rules around marketing are being applied in a standardised way, and also as a learning exercise to find out more about the use of digital channels, and finfluencers specifically, by financial services firms.
This level of exploratory activity suggests more rules are to come, especially as those regulatory bodies that started earlier have already taken their next steps.
More advanced regulatory decisions
As noted, the FCA has already done considerable work to better understand the impact of finfluencers. Consequently, in July it launched a consultation on proposed new guidance for financial promotions on social media, to replace existing rules.
An FCA spokesperson told The Banker: “More influencers [are] touting products that they shouldn’t be. That’s why we’ve consulted on new social media guidance to reflect how social media is being used to advertise financial services and products. The guidance will outline what we expect from firms using influencers to promote financial products or services.”
Proposals include the requirements that firms take into account their compliance with its new Consumer Duty when using social media, that finfluencers understand both what they’re promoting and the relevant regulation, and that “dynamic mediums” (e.g. Instagram’s Stories feature) should display relevant risk information for a sustained period of time.
The Securities and Exchange Board of India has also got to creating proposals for feedback, in particular related to the association of registered entities with unregistered entities, “including Finfluencers”. Meanwhile, the Belgian Financial Services and Markets Authority introduced new rules around the advertising and promotion of virtual currencies in May 2023 that included a requirement that any advertisements to be used in “mass media” campaigns would have to be submitted to the regulator at least 10 days before distribution.
From these new rules and proposals we can infer what the outcomes of other regulators’ exploratory actions might be.
The impact of new rules
Most regulators have indicated that any new rules will be revisions or additions to existing pieces of legislation. That’s not necessarily a bad thing, as “rules regarding financial advice need to evolve just as other rules and regulations have evolved based on new technology”, points out Ms Rudin. She also comments that, in her experience, the financial services industry welcomes rules around novel technologies and business models because participants are so used to operating within clear boundaries.
it’s very important that the FCA works with [finfluencers] and not against them
Margot de Broglie, co-founder of Your Juno, a financial education platform for women that uses finfluencers regularly, agrees that more needs to be done in terms of regulation, particularly when it comes to the clarity and digestibility of any new rules. However, she adds a note of caution: “Finfluencers have played a really important role, and still do today, in broadening the conversation around personal finance and I think it’s very important that the FCA works with them and not against them,” she says.
This suggests that regulators looking to rein in financial promotions across social media will have to do so in a considered manner if they are to balance removing bad actors with maintaining access to financial guidance and advice for those unable to access it elsewhere.
How effective will it be?
One issue regarding the introduction of new rules, raised by both Ms Rudin and Ms de Broglie, is the ability of regulators to enforce them. Rule-makers have acknowledged this challenge, as exemplified by Iosco’s enforcement toolkit, by giving advice on using technology such as algorithmic search software to detect illegal activity.
However, it’s unlikely that, even with the help of digital tools to fight fire with fire, regulators will be able to keep up with the proliferation of new financial content disseminated through digital channels. That’s why industry insiders are hoping regulation goes hand in hand with education, not only of consumers but of finfluencers.
Rules must be accessible to finfluencers who want to do the right thing but have no formal financial education or access to lawyers in order to have maximum impact, believes Ms de Broglie. “How do we take the FCA guidance and make it as easily understandable as possible for the average influencer?” she asks.
Meanwhile, the FCA has decided that if you can’t beat them, you might as well join them. The regulator is working with a celebrity influencer to access other influencers and spread awareness of an interagency infographic outlining reminders for staying on the right side of the law, such as avoiding giving financial advice and the importance of labelling posts as promotions.
Finfluencers can help financial firms of all shapes and sizes reach underserved demographics with financial support and guidance. There’s no suggestion they will be banned outright — but guidelines will be provided to ensure their activities work in consumers’ best interests.
