Clifford Chance

Influencer marketing is an increasingly lucrative revenue stream for companies. ASIC has issued a reminder that the law applies equally to social media personalities promoting financial products and services online - and the AFS licensees who use them.

What happened?
On 21 March 2022, the Australian Securities and Investments Commission (ASIC) issued a cautionary media statement and information sheet aimed at 'finfluencers', i.e., social media influencers who use their platforms and large followings to feature and promote financial products. The regulator warned that it was monitoring select online financial discussion by finfluencers and that enforcement action could result in imprisonment of up to five years and fines for companies in the millions.

The statement addresses the push for greater transparency and accountability among the influencer community, particularly as finfluencers have been known to engage in widespread practices which potentially mislead vulnerable demographics. ASIC's concern is that these (mostly unlicensed) individuals provide stock tips and other investment advice, as well as promote hyperlinks to third-party platforms trading shares and managed funds relied upon by large, predominantly younger, audiences looking to invest. The advice and affiliate links are often shared in parallel of posts portraying a seemingly extravagant lifestyle, risking their audiences will conflate the two. A 2021 ASIC survey demonstrates the reach and impact of these practices, finding that 33% of 18-21-year-olds follow at least one finfluencer on social media, and 64% had altered financial behaviour as a result.

ASIC walks the walk

ASIC's warnings are currently being tested in the Federal Court of Australia, where the corporate regulator brought proceedings against Tyson Scholz in December 2021. It is alleged that Scholz provided financial services to thousands of social media followers without the requisite license. ASIC claims the alleged services consisted of providing training courses and seminars about trading in securities as well as offering stock tips, and were promoted through Scholz's Twitter and Instagram accounts. The proceedings remain on foot with evidence due to be served in May 2022.

What companies should know

The recent warning is not confined to the finfluencers themselves. ASIC expressly targeted the media statement at Australian Financial Services (AFS) licensees who use finfluencers and emphasised that these entities may also be liable for misconduct.

Companies backing the practices of finfluencers, particularly those in the financial services industry, should actively review their marketing arrangements to ensure they are in full compliance with legal and regulatory requirements.

In particular, carrying on an unlicensed financial services business can constitute an offence under the Corporations Act 2001 licencing provisions, and ASIC has warned this may extend to individuals promoting financial products via social media on behalf of a company. Companies and their representatives (which can include these finfluencers) should also be cognisant of their obligations under Australian law, specifically the prohibition against misleading and deceptive conduct in relation to financial products and services.

ASIC's information sheet – INFO 269 – accompanying the media statement may act as helpful guidance. It provides clarity in an emerging nexus between the law and its application to technology. The guidance may act as a catalyst for companies backing finfluencers to change content style and business models, enhance their due diligence, risk management and monitoring processes and embed adequate training and compliance requirements for their representatives.

Influencer regulation – a broader push for transparency

The ASIC warning and Scholz case are far from the first time a regulator has ventured into influencer marketing regulation of late. With many companies relying on influencers as a lucrative source of advertising, ASIC's latest move is part of a broader enforcement trend to facilitate transparency and accountability in the influencer landscape.

In January 2022, a new Therapeutic Goods Advertising Code came into effect, issued by Australia's Therapeutic Goods Administration (TGA). The changes to the Code cracked down on influencers commissioned to promote regulated and unregulated health products, by clarifying that the longstanding rule against paid or incentivised testimonials in advertisements applies equally to influencers.

In its compliance and enforcement priorities for 2022-23, the Australian Competition and Consumer Commission also called out social media influencers who fail to disclose commercial relationships including paid promotions as a practice of concern.

Moving forward, we can expect ASIC to make good on its warning that it is ready to take action to enforce the law where it sees harm.