INTRODUCTION
The rise of social media marketing has transformed social media platforms, from medium of entertainment into powerful tools shaping financial decisions. Influencers, highly admired individuals on these platforms, have become key players in this shift, with businesses leveraging these influencers to promote their products, services, and investments. This surge of 'finfluencers' has prompted the Securities Exchange Board of India (SEBI) to take cognisance of unregulated finfluencers undertaking SEBI regulated financial activities. Most recently, SEBI in its order cum show cause notice dated 25 October 2023 cracked down on a certain finfluencer claiming to be a 'stock market expert' and meting out 'investment advice' under the garb of educational courses on securities market.
While SEBI has heightened its scrutiny of finfluencer conduct, as highlighted previously in our article, no existing law in India adequately addresses the market of finfluencers. SEBI on 25 August 2023 released the 'Consultation paper on Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers)' to restrict association of SEBI registered entities with unregistered finfluencers. However, as previously highlighted in our article, there is not much clarity on the registration requirements for finfluencers. In this light, we seek to understand the regulatory approaches in other financial markets globally where finfluencers pose similar threats.
CROSS-JURISDICTIONAL ANALYSIS
AUSTRALIA
In 2022, the Australian Securities and Investment Commission (ASIC), Australian counterpart to SEBI, introduced Information Sheet 269 under which social media influencers who provide 'financial products advice' online are required to obtain an Australian financial services (AFS) license or an authorization from an AFS licensee to act as their representative. 'Financial product advice' here refers to statements of opinion meant to influence decisions regarding financial products. Providing factual information is in itself not considered 'financial product advice', but it becomes so if presented in a way that recommends or discourages investment in a product or class of products. Influencers receiving benefits for their comments are more likely to be providing financial product advice since it indicates an intention to influence the audience.
If an influencer is acting on behalf of an AFS licensee, the AFS licensee will be liable for compliance such as adequate training of the influencer and influencer's compliance with the financial services laws. ASIC has also issued certain good practice guidance for any promotional activity pertaining to financial products which are non-binding in nature. These include giving out a balanced view of the products including returns, features, benefits, risks, costs, disclaimers, etc. Finfluencers should avoid technical jargons and the advertisements should be clear and legible.
The qualification requirement for AFS licensee include appropriate tertiary qualification to at least a Diploma level and required training on the relevant financial products.
FRANCE
France enacted Law No. 2023-451 on 9 June 2023, to regulate commercial influence and combat excessive behaviour by social media influencers. This comprehensive framework applies to individuals engaged in commercial influence activities, where they share content for remuneration to promote products, services, or causes via electronic means. This law would include under its ambit influencers promoting any product or service, whether financial or not, having a commercial influence.
With respect to promotion in general, influencers are required clearly and conspicuously label their content as "advertising" or "commercial collaboration" in partnership scenarios failing which the promotional activity will be considered as misleading commercial practice. The French law altogether prohibits advertisement of certain financial products and services (notably crypto-currencies). Besides these explicit mentioned duties, finfluencers are also subjected to Guide to Good Conduct, which regulates advertising and promotion of goods and services over the internet and the non-binding 'Responsible Influence' certification issued upon pursuing the online general training course on best practices in ethical influencer marketing.
For regulated Financial Investment Advisors in France, qualification requirements involve meeting one of the following criteria: (i) holding a 3-year graduate degree in legal, economic, or management; (ii) completing 150 hours of vocational training in financial activities; or (iii) possessing 2 years of professional experience in investment, banking, or investment services within the preceding 5 years of involvement in these operations.
UNITED STATES OF AMERICA ("US")
Social media influencers in US are regulated by the Federal Trade Commission under ' Guides Concerning the Use of Endorsements and Testimonials in Advertising' and ' Disclosures 101 for Social Media Influencers'. These guidelines require influencers to disclose any significant connections with companies, whether familial, financial, or employment-related, whose products they are endorsing. Additionally, they must disclose any compensation or incentives received in exchange of their endorsements and are prohibited from making deceptive representations, whether express or implied. These rules are expected to encompass financial products as well.
For regulated Investment Advisors (IAs), the Securities and Exchange Commission, the US securities market regulator, implemented amended rules in 2022 regarding 'Investment advisor marketing.' These rules mandate that IAs ensure all endorsements, testimonials, or promotional acts by third parties comply with necessary disclosures, including the amount of compensation received for promotions. IAs must also establish a written agreement with individuals promoting them. However, this agreement requirement is exempt for individuals receiving compensation less than $1,000 during the previous 12 months. While there are no specific educational requirements for registering as an IA, individuals must pass and hold the General Securities Representative license, which covers fundamental investment knowledge and regulations that financial advisors need to know.
Further, Financial Industry Regulatory Authority, a self-regulatory body, has issued guidance instructing brokerage firms to evaluate the backgrounds of potential social media influencers, provide training, define permitted and prohibited conduct, and maintain records of influencers and referral program communications.
CHINA
The People's Bank of China, like India, does not have a regulatory framework in place for finfluencers at this time. Chinese financial regulatory authorities like the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission, have collaborated to introduce a consultation paper on ' Online Marketing of Financial Products', which establishes specific requirements for the online sale and marketing of financial products, aiming to ensure that Financial Institutions (FIs) and their marketing agents only promote financial products that align with consumers' financial status and risk-bearing capacity. Only individuals possessing "relevant industry qualifications", operating as employees of FIs, would be permitted to promote financial products and services through social media, and FIs would bear the responsibility for overseeing these marketing activities and entering into written agreements to that effect.
Online marketing of financial products would be restricted to regulated products, meaning that promoting illegal fundraising, crowdfunding, virtual currency trading, foreign exchange trading, private equity products, and non-public securities offerings through online marketing would be prohibited. Additionally, the regulation would bar nested sales, where non-bank payment institutions provide marketing services and accept payments for financial products like loans and asset management products. The regulation would also mandate comprehensive disclosures and prohibit the use of names and images of academic institutions, industry associations, and professionals as endorsements for financial products marketed online.
CONCLUSION
India in its initial efforts to enforce and promote accountability among finfluencers, could draw insights from other jurisdictions. While the regulations in these jurisdictions provide good reference point, the regulations in India will need to factor unique Indian circumstances in which finfluencers operate. With increased access to internet, mobile telecommunication and content platforms, the ubiquitous dissemination of financial information has both good and bad repercussions. While educational financial content is welcome, there is a need to curb the menace of unaccounted mis-selling of financial products by finfluencers. For instance, certain finfluencers primarily offer educational finance content instead of investment advice and it may not be necessary to subject them to the same regulations as other SEBI regulated entities or altogether restrict SEBI regulated entities from partnering with them. Alternatively, SEBI may explore a model akin to Australia, where AFS regulated entities may collaborate with finfluencers (who act as authorised representatives of licensees) under their supervision, content evaluation, and training. Further, like the Chinese approach, cross-sectoral collaboration in regulating online financial product marketing will also be required.
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