Why Financial Influencers Are at Serious Risk of Breaching the Corporations Act

Social media influencers who promote and discuss financial products and services through social media platforms (known as 'finfluencers') have been put on notice by ASIC to comply with financial services licensing laws to avoid incurring significant penalties for breaches of the Corporations Act 2001 (Cth) (Corporations Act).

financial services licensing laws

The Corporations Act requires a person who carries out a financial services business in Australia to:

• Hold an Australian Financial Services Licence (AFSL);
• Be appointed as an authorised representative of an AFS licensee; or
• Be exempt from that requirement.

Under the Corporations Act, financial product advice is a recommendation or statement of opinion which is intended to influence, or which could be reasonably regarded as being intended to influence, a person deciding about financial products or class of financial products.

the rise of finfluencers

Finfluencers typically use social media to provide a range of content regarding personal finances, including:

• Advice on purchasing a property;
• Investing in shares; or
• Using a particular cryptocurrency platform. 

ASIC's 'Young People and Money – Survey Snapshot' published in December 2021 found that nearly 30% of young people followed at least one finfluencer on social media and that 64% of those young people had changed their financial behaviour due to following a finfluencer.

As a result, there is a real risk that influencers will appear to have provided financial product advice to their followers given that:

• The function of social media influencers is to influence their audience to behave in a certain way; and 
• Making statements which could influence someone to make decisions in relation to financial products is financial product advice under the Corporations Act.

aSIC information statement

Earlier this year, ASIC released information sheet INFO 269 (Information Sheet) in response to the rise of finfluencers. The Information Sheet warns finfluencers to ensure that the content they produce (and the way they seek to promote financial products and services) is aligned with the financial licensing laws. 

The Information Sheet deals with a number of issues, including (among other things):

• When certain statements, behaviours or representations constitute financial product advice;
• The AFS licensing requirements for those who carry on a financial services business and provide financial product advice; and
• The prohibition against misleading or deceptive conduct.

The Information Sheet also puts finfluencers on notice that ASIC will take enforcement action if it's in the public interest, which could include the imposition of penalties of up to five years imprisonment.

What Constitutes Financial Product Advice?

Some examples of what is likely to be financial product advice:

• Statements intended to influence someone's decision to purchase specific financial products. Such as, "I'm going to share with you five long-term stocks that will do well and you should buy and hold."; and
• Statements that are likely to be financial product advice and may also be misleading. For example, "ETFs will make you a guaranteed positive return."

What constitutes misleading and deceptive conduct?

An influencer does not need to be licensed to breach the misleading or deceptive conduct provisions of the Corporations Act.

Some examples of misleading and deceptive conduct set out in the Information Sheet include:

• Claims that cannot be substantiated by the influencer. For example, "Holding onto this share in the long term will generate significant returns and is just like depositing your money in the bank."
• Opinions of the influencer that are untrue or inaccurate. Such as, "Trading in this derivative is a risk-free way to make a quick profit on the side – I made $$$$ from trading these alone!"