ASIC warns companies about risks when engaging with financial influencers

ASIC commissioner Cathie Armour has warned companies about regulatory risks when engaging the services of financial influencers (finfluencers).

For some listed companies, finfluencer collaborations may seem like a fast, effective way to promote issued securities to the next generation of young retail investors. However, companies should be cautious when engaging finfluencers — as part of their promotional initiatives generally, or in connection to corporate transactions.

Businesses are advised to do their due diligence as finfluencers may be contributing to their regulatory risks.

As most finfluencers do not hold an AFS licence, they are not subject to the requirements that apply to licensees, including:

• Having adequate arrangements to manage conflicts of interest
• To provide financial services efficiently, honestly and fairly
• To meet education standards.

If a finfluencer chooses to remain unlicensed, and is found to be running a financial services business without having an AFS licence or being an authorised representative of an AFS licensee, they may be in breach of the Corporations Act 2001 (the Act), which carries significant penalties.

If a corporation engages a finfluencer who breaches the law by providing unlicensed financial advice, the corporation may also be in breach under section 79 of the Act.

Businesses may also want to understand whether the finfluencer has existing vested interests to promote other financial products and services in case there is a conflict of interest or risks to the organisation.

Furthermore, ASIC is seeing a rise in attempted market misconduct, such as “pump and dump” schemes. They may do this via finfluencers, social media or online forums to generate a sense of excitement.

ASIC monitors the market for this activity and will act when it sees extreme price movement. However, it is important for companies to be aware of these types of misconduct-related risks and their potential for unintended consequences arising from finfluencer collaboration.

Certain social media platforms may have advertising guidelines and some finfluencers state that they self-regulate. Either way, the law still applies. ASIC is engaging with social media platforms and their moderators, as well as with finfluencers, about their responsibilities (including requirements under the Act) and the limits of acceptable promotion.

The regulator notes that it is also undertaking a review of selected finfluencers to understand their business models and how the financial services law applies to this activity.