‘Finfluencers’ – as they have been cleverly coined – are financial influencers. Often, these are individuals who have a large social media following and use that platform to discuss financial matters, or to promote services and products on behalf of financial institutions.
- With the rise of social media comes greater opportunity for firms to advertise, and a new demographic of consumers to tap into.
- Enter ‘finfluencers’, a concept that now means that information around finance is increasingly more accessible to younger audiences.
- Firms must curate a carefully planned strategy to ensure they are providing a holistic picture of their product portfolio, not only to avoid fines but to conduct their due diligence as financial service providers.
With the rise of social media comes greater opportunity for firms to advertise, and a new demographic of consumers to tap into. Despite the added risks, firms are now able to meet prospective customers where they are in order to equip them with what they need to make educated financial decisions. Enter ‘finfluencers’, a concept that now means that information around finance is increasingly more accessible to younger audiences.
‘Finfluencers’ – as they have been cleverly coined – are financial influencers. Often, these are individuals who have a large social media following and use that platform to discuss financial matters, or to promote services and products on behalf of financial institutions.
Where research has shown that 80% of millennials and Gen Z’s have used social media for financial advice, and 43% of Gen Z think this advice is helpful, finfluencers have begun to play a large role in the dissemination of financial information. It is no wonder that #Fintok has gathered 4.8 billion views on TikTok. However, these new advertising techniques and territories may in fact cause greater consumer harm than good.
Regulators (are) really digging into the details like they’ve never done previously
Rob Mason
A report published by IOSCO, entitled ‘Report on Retail Distribution and Digitialisation’,outlined that the compliance risks associated with finfluencers lies in the lack of transparency surrounding the associated risks of the products they promote, as well as a lack of authorization around advice they provide. The report recommended that regulators must remind firms they are responsible for the online comms of finfluencers.
Regulators such as the Financial Conduct Authority (FCA) are doing just this, as seen in a recent case whereby nine finfluencers were charged with issuing unauthorized financial promotions of contracts for difference [CFDs] between 2018 and 2021. CFDs are notorious for being risky investments, where many leverage debts to amplify their returns. In this instance, finfluencers may be inadvertently exposing vulnerable investors to financial risk, where they do not know the full story.
As a result of increasing social media risk, the FCA is now making the rules around financial promotion clear. In March 2024, the regulator published finalised guidance on financial promotions on social media. The guidance sets out that adverts across social media channels must be fair and clear in outlining risk warnings, and influencers must have approval from an FCA-authorized person when promoting financial products.
As attention spans decrease with the introduction and popularity of short-form video content, paired with character limits on social posts, the regulator is looking to ensure that individuals are immediately informed of the disadvantages and risks as soon as they consume content. Businesses must present a degree of honesty when they advertise.
Regulators across the board are presenting a consistent theme in their commitment to transparency and protecting consumers, as seen in the Securities and Exchange Commission’s (SEC) targeted sweep against firms presenting hypothetical performance advertising within their marketing collateral and communications. By holding firms and social figures to account the regulators are acting to prevent market manipulation by ‘get rich quick’ schemes that encourage price distortions and increased market volatility.
As a testament to its scrutiny of financial promotions that do not follow the rules, the FCA has now removed 10,000 misleading ads that do not provide risk warnings on videos, every photo of a carousel post, and single image posts. The regulator is not stopping there, it is looking to invest in web-scraping and AI tools to scour the web for non-compliant material, specifically that circulated around social media.
As new avenues of communication, such as social media, arise, firms must curate a carefully planned strategy to ensure they are providing a holistic picture of their product portfolio, not only to avoid fines but to conduct their due diligence as financial service providers.
Once finfluencers follow regulation and navigate the ever-changing medium that is social media, they have the potential to break barriers around financial education that was once limited to a certain financial elite. This is perhaps why the regulators are taking such a hard stance towards it so that it can grow and expand in a way that benefits all market participants. However, firms must understand that although social media is a relatively new and unknown space to the regulatory industry it is not exempt from the watchful eye of the regulator. Firms should revisit social media and influencer policies now, to avoid regulatory wrath later.
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