On 21 March 2022, the Australian corporate watchdog, the Australian Securities and Investments Commissions (ASIC), published an information sheet (INFO269) indicating that it was turning its attention to unlicenced financial advice put forward by social media influencers (FinFluencer).
In reference to Prince Hamlet’s opening phrase as he contemplates between life and death, the FinFluencer may ask, to financially advise, or not to financially advise? The answer to that simple, yet complex question rests on understanding how ASIC interprets the provision of financial product advice and the requirement to hold an Australian Financial Services (AFS) licence.
The Policy behind the Law
The law of financial services acts as a shield to protect investors and promote market integrity. As the enthusiasm for financial wealth heightens, these laws protect eager investors who would otherwise make high risk decisions at the first instance. It also protects investors from unscrupulous stakeholders who look to further their personal commercial agenda through, for example, misleading or deceptive conduct.
ASIC’s policy is imbedded within provisions of the Corporations Act 2001 (Cth) (Corporations Act) requiring those marketing or advising on financial services to hold an AFS licence (however, exceptions do exist under these provisions). The provisions also attract significant penalties for breach, being up to five years’ imprisonment for an individual or financial penalties, often in the millions, for a corporation.
The Financial Influencer
If an influencer is looking to provide financial advice or arrange for the acquisition of a financial product, the influencer must hold an AFS licence. If the influencer fails to adhere to the licensing requirements, they may be in breach of the Corporations Act.
Opinion on Financial Products or Services
Suppose an influencer provides financial advice to its followers by stating, “I’m going to share with you five long-term stocks that will do well and which you should buy and hold”.
Here, the influencer is intending to persuade its followers to buy a specific financial product, therefore providing an opinion about the product. As a result, ASIC would consider this likely to be financial product advice and require an AFS licence.
The law defines a ‘financial product advice’ as a recommendation or statement of opinion intending to influence a person to make a decision concerning financial products.
Misleading or Deceptive conduct in relation to Financial Products or Services
Let’s assume that an influencer, who is looking to promote a financial product, states to its followers something along the lines of “ETFs will make you a guaranteed positive return”.
Here, the influencer is providing their opinion that a positive financial return is guaranteed on a class of financial products. ASIC would consider this not only to be financial product advice, but also likely to be misleading or deceptive.
Conduct which involves statements likely to be misleading or deceiving, or likely to mislead or deceive, in relation to financial products or service, is in breach of the ASIC Act. It is important to note that the prohibition on misleading or deceptive statements applies regardless of if the influencer holds an AFS licence or not.
Arranging to Deal in a Financial Product
The concept of “arranging” is taken to be interpreted broadly under the Corporations Act and the concept has not yet been fully developed by the Courts. Pursuant to ASIC’s RG36, arranging occurs when a person brings into effect the issue, variation, disposal or acquisition of, or application for, a financial product.
INFO269 highlights an example of conduct that may be deemed arranging, whereby:
- an influencer promotes a link to its followers to access a financial service business’s trading platform to trade financial products;
- the link is unique in a sense that it cannot be accessed anywhere else; and
- each time the followers click through on this link, the influencer receives a payment from the financial service business.
The result is that the follower gains access to buying a financial product which they otherwise not have had access to but for that link.
The above example provides one way in which conduct amounting to arranging may be captured under the Corporations Act. However, because of its broad nature, social media influencers and financial services business must be cautious of other conduct that may amount to arranging which will need to be considered on a case-by-case basis.
Financial Service Institutions who use Influencers
Financial services businesses will need to consider their legal obligations when using influencers to promote their financial products or services.
Financial service businesses, holding AFS licences, may be held liable for the conduct by influencers. It is recommended that financial service businesses seeking to utilise the services of a social media influencer, or any representative for that matter, should strongly consider implementing due diligence processes. This may involve, among other things, ensuring that any influencer or representative is adequately trained to promote a financial product and are compliant with the law.
Ensuring that no unpleasant or unexpected risks arise, financial services businesses may seek to implement pre-emption strategies such as risk management systems and monitoring to mitigate risks. Other pre-emption strategies may include implementing AML/CTF onboarding checks for social media influencers, along with background and qualification checks.
Salerno law has a dedicated financial services team with substantive knowledge on how to protect their client’s commercial position and interests. Should you have any questions with regard to the financial licencing requirements or have any concerns in relation to the provision of financial advice, please do not hesitate to contact our team. Salerno Law strives for the best possible outcome for their clients by providing quality advice to companies and individuals in all practice areas.
By Krish Gosai and Hesh Aiyach