From Instagram grids to behind bars: Finfluencers are under investigation
The FCA is cracking down on finfluencers as firms face growing pressure to closely monitor and regulate their social media promotions.
Written by a human
In brief:
- Regulators are targeting finfluencers for promoting financial products without proper authorization
- The Financial Conduct Authority (FCA) is issuing fines, takedowns, and warnings to crack down on misleading content
- The Financial Industry Regulatory Authority (FINRA) has penalized Open to the Public Investing for violating rules pertaining to fair and balanced messaging as well as recordkeeping of retail comms
In what has been declared an international crackdown on rogue finfluencers, the Financial Conduct Authority (FCA) has joined forces with national regulators to protect social media users from illegal financial promotions. This action comes in quick succession to a recent charge of $350,000 to New York based online brokerage, Open to the Public Investing, by the Financial Industry Regulatory Authority (FINRA) for failure to effectively monitor statements by social influencers.
Regulators globally are taking a stand against misinformation and, as Karl Foster, Financial Services Partner at Spencer West put it, making “the reduction in high-risk investment by those with a low tolerance of risk a top priority.”
The finfluencers are not finfluencing correctly
From January 2020 to September 2022 Open to the Public Investing paid 110 influencers to promote their firm on social media through static and video posts. FINRA has found Open to the Public Investing guilty for failing to review and maintain records of retail communications spread by these social influencers, as they were not fair nor balanced and led to misleading statements, and as a result, violated:
- FINRA Rule (2210)(d)(1)(A) which requires all member firms’ communications to be based on principles of fair dealing and good faith, be fair and balanced, and provide a sound basis for evaluating the facts regarding any particular security, industry, or service. It also prohibits firms from making omissions within communications that would cause them to be misleading
- FINRA Rule 2210(d)(1)(B) states that no member may make any false, exaggerated, unwarranted, promissory, or misleading statements or claims in any communication. In addition, no member may publish, circulate, or distribute any communication that the member knows or has reason to know contains any untrue statement of a material fact or is otherwise false or misleading
- FINRA Rule 2010 requires member firms to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business
This is not the first time that FINRA has made clear its expectation around social media communications. In 2021, it issued a findings of a targeted exam (sweep) which reviewed firms’ practices related to gaining customers through social channels. In 2023, it published a summary of selected practices that it observed. From these, the regulator recommended that firms maintain records of social influencers and referral program communications with the public, as part of a broader effort to remain consistent with FINRA recordkeeping rules. It also stated that firms must continue to update supervision protocols surrounding finfluencers in line with regulatory changes and industry trends.
FINRA continues in its pursuit to weed out firms that fail to maintain records of communications dispersed by social influencers, demonstrating that it does in fact investigate social channels, and leaves no stone unturned in its quest to regulate and uphold supervision standards across the board.
An international crackdown
In its joint campaign with national regulators to crack down on illegal behavior by finfluencers, the FCA has requested the deletion of 650 of social posts and the removal of 50 websites operated by unauthorized influencers, issued 50 warning alerts, seven cease and desist letters, three arrests, and is looking to interview four influencers in the UK alone. These measures have been taken as a direct result of the FCA wanting to ensure consumer protection and proper authorization of influencers before they disseminate information about financial products and services which may be of high risk. As Steve Smart, Joint Executive Director of Enforcement and Market Oversight, FCA stated:
“Our message to finfluencers is loud and clear. They must act responsibly and only promote financial products where they are authorized to do so – or face the consequences”.
Finfluencers appear to be wolves dressed in designer clothing, swaying the public opinion in their favor through presenting an aesthetic that convinces an interested and curious audience of their “super algorithm” working to make them a “wonderful trader”, as put by Beth Harris, Head of Financial Crime, FCA. It is for this reason that finfluencer activity must be monitored as rigorously as any communications channel for the possibility of misleading information and unapproved advertising.
2024 also saw the FCA crack down on illegal finfluencers, issuing 38 alerts against social media accounts containing unlawful promotions. The increase in interest and investigation by the FCA is due to the audience at the receiving end of the misinformation, which is largely made up of impressionably young people. Just like its regulatory peer FINRA, the FCA is taking a hard-line stance against finfluencers, and this time it is joining forces with other regulators to do so.
Global Relay oversees and monitors comms across all channels and archives all your data in one secure place. With greater risks posed by finfluencer promotions and social media opening more than just platforms of communication, it is crucial that firms implement the tools and tech needed to enhance their compliance strategies and avoid risk.
