ACCC to Sweep Social Media to Find Deceitful “Finfluencers”
A recent decision by the Federal Court in Australian Securities and Investments Commission (ASIC) v Scholz (No 2) (2022) FCA 1542 has put financial service providers over social media, or “finfluencers”, on notice, with the Australian Competition and Consumer Commission (ACCC) announcing a sweep of social media to crack down on deceitful influencer marketing.
A finfluencer is essentially someone on social media who discusses finance and investing, with the concept proving to be extremely popular. For example, the TikTok hashtag Moneytok, has amassed almost 20 BILLION views.
Finfluencers fill a gap in the financial service market; often providing an entertaining, cheap, and fast alternative to traditional financial advisors, who for many are too costly, time consuming and often irrelevant to their personal circumstances. Such rapidly changing way that financial advice is being delivered presents a challenge for legislators and courts to protect consumer interests, something the ACCC is known to be proactive about
The ACCC crackdown is concurrent to ASIC requirements from finfluencers to remain legislatively compliant. Both bodies have regulations to prevent consumers from making an impartial decision which could lead to significant financial harm. The ACCC focuses on the deceitful marketing aspect, where finfluencers receive undisclosed payments from a product they are promoting, while being unlicenced. Cryptocurrency is a prime example of how deceitful marketing and financial advice can be combined to manipulate consumers for the finfluencer’s benefit. The volatility of cryptocurrencies can lead to ‘pump and dump’ scams, where finfluencers will spruik a cryptocurrency to increase trading and then sell their own shares at an inflated price (similarly, ‘wash trading’ can also occur whereby cryptocurrencies is simultaneously sold and bought by the same investor to create misleading, artificial activity).
Each year, the ACCC announce a list of areas of compliance they wish to prioritise, and this year the priority is to prevent consumers from being misled or deceived by advertising and marketing practices in the digital economy. The crackdown is focusing on finfluencer marketing saturated industries such as skincare, parenting, health and fitness, travel, fashion and gaming. The ACCC will probe all forms of popular social media platforms, including Instagram, TikTok, Snapchat, YouTube and Facebook. Several of these social media platforms already have their own rules surrounding payment for advertising, with TikTok for example, requiring all content creators to disclose branded content and taking action when unlabelled sponsored content is shown. Although social media platforms are advocating for payment disclosure and the eradication of deceitful marketing ploys, government intervention will always be necessary.
The Corporations Act 2001 (Cth) (Act) which traditionally governs the practices of businesses and service providers across many industries is now has been used to monitor social media business. Under the Act, financial product advice can be a recommendation, statement of opinion or reporting on either of those things intended to influence a person to make a decision about a financial product. The key word is “influence”; most of us are now aware of the huge impact influencers have since the rise of social media. If a person is found to be carrying on a financial services business, then the person must have an Australian Financial Services Licence (AFSL). The penalties can be severe for carrying on a financial services business without a licence.
The Scholz Case
In the Scholz case, Tyson Scholz delivered training courses about stock exchange trading and made recommendations on Instagram and other online forums. Critically, the court found that the financial advice he was providing was an integral part of his business which was continuous and systematic and that provided him with a profit. ASIC has noted that any finfluencer who receives benefits or payments for comments is more likely to be providing financial product advice because it indicates an intention to influence the audience.
The Scholz decision confirmed that those who promote financial products and services on social media must be carrying on a financial services business for the purpose of the Act. The Scholz decision and the ACCC crackdown has drawn a line in the sand; finfluencers need to think about their content carefully before posting online, and seriously consider obtaining and AFS licence, to avoid breaching Australian financial and consumer laws.
Hesh Aiyach and Christopher Horn – Salerno Law