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In response to concerns raised by the activities of social media financial influences (finfluencers), late last year the Canadian Securities Administrators and the Canadian Investment Regulatory Organization released Staff Notice 31-369 Guidance on the Application of Securities Legislation to Finfluencer Activity (Joint Staff Notice). While the Joint Staff Notice speaks primarily to finfluencers themselves, and describes how various securities laws apply to their activities, registrants should take note because in certain circumstances, they may be held responsible for what is said on their behalf.
The Joint Staff Notice indicates that the regulators consider a finfluencer to be a person who creates online content to offer "advice, tips, and guidance on how to manage money, invest, and achieve financial goals." If activities cross the threshold of becoming registerable advisory activities, then it is possible an advisory registration exemption, the "general advice" exemption, could apply to such activities, provided that clear and timely disclosure is provided about any financial or other interest in the securities referenced by the finfluencer. Of interest, the Joint Staff Notice stated that the use of certain emojis or language such as "not to be missed" may amount to an investment recommendation.
The Joint Staff Notice provides further information with respect to the business purpose trigger for registration and the requirements for use of the general advice exemption. For example, the disclosure about the finfluencer's interest in the securities should be specific and include the security, the nature of the compensation, the payer and the recipient of the payment or other incentive. Disclosure of such interest should be prominent and would typically be appropriate at the beginning of the communication. The Joint Staff Notice specifically indicates that it would not be sufficient disclosure if the reader needs to make additional clicks to receive the information in full.
Finfluencers should be aware that no equivalent exemption is available for those in the business of dealing or trading in securities from the requirement to be registered as a dealer. Activities amounting to trading could include, for example, the facilitation of "copy trading" by providing a link to a DIY trading account to replicate a finfluencer's trades for a fee.
Other potential securities law requirements that should be considered by finfluencers include whether their activities amount to entering into a referral arrangement subject to all of the requirements for such arrangements set out in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. As well, persons who are paid to market or promote particular securities may be undertaking regulated investor relations activities and thus found to be acting on behalf of a registrant or issuer. Finfluencers are also warned about prohibitions against misrepresentations and market manipulation activities.
Registrants who engage the services of finfluencers must also be mindful of the securities law implications of doing so. As noted above, such engagements may amount to referral arrangements, and the general rules relating to conflicts of interest, marketing activities, and advertising all still apply. The Joint Staff Notice warns that registrants might be facilitating registerable activity by unregistered finfluencers, depending on the circumstances.
Registrants can take several steps to address such risks, including the following:
- Engaging in due diligence on the finfluencer prior to engaging them;
- Ensuring written agreements set out each parties' roles and responsibilities;
- Ensure the finfluencer discusses the registrant's products in a fair, balanced, substantiated and not misleading way;
- Ongoing monitoring of claims and statements;
- Employee training regarding direct involvement with finfluencers; and
- Complying with conflict of interest obligations by identifying, disclosing, and addressing material conflicts of interest in the clients' best interests.
The Joint Staff Notice concludes by reminding registrants and finfluencers that these online activities are monitored for breaches of securities laws. Regulators, as it turns out, follow back.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
