Under the Finfluence: What Do Australian Regulators Think?
Under the Finfluence: What Do Australian Regulators Think?
Compliance and enforcement priorities for two of Australian regulators, ASIC and ACCC, are now firmly focused on the Digital Economy.
Compliance and enforcement priorities for two of Australian regulators, ASIC and ACCC, are now firmly focused on the Digital Economy. Some might say “it’s about time!”
The regulators will coordinate with each other on many matters including combined financial and non-financial issues, so there is potential to be explaining your actions on two fronts.
What is ASIC doing with Finfluencers?
ASIC started ‘cautioning’ finfluencers in April 2022. Prominent social media influencers attended a briefing about the need for a financial services licence from ASIC in early April 2022. It was invitation only and about 30 turned up, with some commenting vocally on social media that the briefing heralded the end of their business.
So, what is a Finfluencer, and why is ASIC suddenly so interested?
$99 million dollars lost by Australians in 2021 on scams involving crypto assets (ASIC Commissioner Cathie Armour, March 2022) is why ASIC is interested. That’s just crypto and doesn’t account for other significant losses on financial platforms.
From ASIC’s perspective, a Finfluencer is “a social media influencer who discusses financial products and services online”.
If you wanted to have a technical legal argument, we could look at the meanings of ‘social media’, ‘influencer’, ‘discusses’, ‘financial products and service’. Unfortunately, that is a tortured road and only really necessary if you land in a position where you must defend yourself.
Prevention is better than cure!
What it really comes down to is whether, in the online environment (websites and email lists included) you promote a financial product or financial service.
In Australia, if you are providing financial product advice or arranging for your followers to deal in a financial product, you must hold an Australian Financial Services Licence (AFSL). There is a huge compliance regime around it and its overly complicated. It can also take quite some time to get a licence; its not at all like getting a diver’s licence.
Financial product advice is a recommendation or statement of opinion which is intended to influence, or which could reasonably be regarded as being intended to influence, a person making a decision in relation to financial products.
Earning an income from discussing financial stuff online “indicates an intention to influence the audience”, according to ASIC.
So, a Finfluencer is someone making money from discussing financial stuff online. If what you say is purely factual – “property investment and on market trading are the most common forms of investment in Australia”, then you are ok.
If you say something like “you get way better returns on crypto than shares” alongside promotion of a crypto trading platform, then you are likely to get into trouble. Especially if you are earning revenue from the promotion of the crypto trading platform.
According to ASIC, dealing in a financial product can be as simple as posting a unique affiliate link for a trading platform.
Understanding What Finfluencers Can and Can’t Do Online
Penalties from ASIC for providing financial advice online without an AFS licence can reach 5 years in jail for an individual and more than $1 million in fines.
If you’re worried about what you are publishing, including historical posts, and whether that might put you in the line to be part of the ASIC Finfluencer crackdown, make an appointment with us to help identify your real risks and whether continuing to operate your business is realistic, or not.
There may be strategies you can implement (and rules to follow) so that you sit outside those needing an AFSL, including becoming a representative for an AFSL holder.
What’s the Risk of Prosecution by ASIC for a Finfluencer?
Part of the recent awareness campaign is to ensure the ASIC will hear about problems now that more people are aware of their concerns. You might not get a complaint from one of your followers, but in our experience, regulatory complaints are often generated by your competitors rather that your customers.
“ASIC takes enforcement action where it is in the public interest”
Right now, ASIC is likely to be focused on finding someone to prosecute and make an example of to warn Finfluencers of the consequences of non-compliance. It also helps them encourage industry compliance.
ASIC takes enforcement action where it is in public interest. If you’re not already known by ASIC, don’t have much of a following or haven’t been complained about, ASIC probably doesn’t know you exist.
- you have a huge following, or
- enough people complain about losing money as a result of interacting with you, or
- you are already on ASIC’s radar (due to past behaviour), or
- they’ve come up with an algorithm to find you on social media without human eyes having to complete all the searches,
you’re unlikely to get any attention from the regulator in the immediate future. ASIC only has so much funding.
And then there is ACCC and consumer protection laws…
Digital Marketing is one of ACCC’s 2022/23 Priorities
The digital economy is now front and centre with ACCC adopting a focus on:
- Consumer and fair-trading issues relating to manipulative or deceptive advertising and marketing practices in the digital economy.
- Competition and consumer issues relating to digital platforms.
- Promoting competition and investigating allegations of anti-competitive conduct in the financial services sector, with a focus on payment services.
So Finfluencers are potentially in the firing line with both ACCC and ASIC. The regulators will coordinate with each other on many matters including combined financial and non-financial issues.
What’s the Problem with Marketing and Advertising Online?
ACCC is concerned with techniques that are manipulative and generate sales as a result of FOMO (fear of missing out). Techniques of concern include:
- false scarcity reminders such as low-stock warnings
- false sales countdown timers
- targeted advertising using a consumers’ own data to exploit their individual characteristics
- pre-selected add-ons (no, I don’t want McAfee with that!), and
- design interfaces that discourage unsubscribing.
A scarcity reminder is false when you have the stock or capacity to provide services but have chosen to limit the number for sale at a given time for the main reason of creating urgency in purchasers.
It’s that level of pressure experienced by the purchaser that is considered manipulative, and the higher the priced item, the greater the problem in ACCC’s eyes. Intent can be implied rather than stated. So even if you say it wasn’t your intent to be misleading, where the end result is higher sales due to a perception of the buyer that if they don’t buy then, intent may be implied.
The pre-COVID seminar industry provided an excellent example of the type of sales pressure that is a concern for ACCC – that emotional pressure to rush to the back of the room to complete a purchase before you miss out. Where marketing includes emotional triggers (doesn’t it all, at least marketing that works?) and those triggers are considered unfairly manipulative, you may have cause for concern.
ACCC has previously warned that high pressure sales tactics may be considered unconscionable conduct [https://www.accc.gov.au/business/anti-competitive-behaviour/unconscionable-conduct] and if sales commissions are structured around that type of selling, it will only emphasise the risk that the sales tactic will be unconscionable.
Other practices of concern include manipulation of online reviews and search results – using false testimonials is a specific breach of consumer law – and comparison websites and social media influencers who don’t disclose commercial relationships and paid promotions. As long as it is clear that promotions are paid promotions, an accusation of manipulation could be avoided.
The failure to disclose payment for comment is a red flag because it is thought that the comments are more likely to be misleading to potential customers than they would be if there was a wholly independent review without benefit to the writer or publisher. It is also suggested that if you do have a ‘adv.’ or ‘sponsored’ tag or notice somewhere obvious on the review that customers can better determine how much weight they will give to the writer’s opinion.
What’s the Risk of Prosecution by ACCC?
ACCC selects companies working in their current priority areas when deciding whether to pursue a matter. Again, ACCC doesn’t have the funding to follow up or prosecute every compliance complaint. They focus on those complaints that they believe will give them a win in court, or a negotiated resolution that can be published, and choose claims where the defendant can serve as an example for the rest of the industry.
Despite having an online portal for collection of complaints, where a complaint is made about a small business, particularly one that does not operate outside state boundaries, it isn’t likely to get picked up by ACCC and the complainant may need to start their own legal action to get a remedy.
ACCC has a range of enforcement remedies to address contraventions including litigation and court enforceable undertakings, which are designed to be proportionate to the conduct and the resulting or potential harm.
Their stated first priority is to “achieve the best possible outcome for the community and to manage risk proportionately”.
The main actions they use are:
- encouraging compliance through educating and informing consumers and traders
- enforcement using administrative processes or more formal processes such as court action
- undertaking market studies
- coordination with other government agencies.
Regulators are slowly catching up to the way the digital economy works and taking an interest in consumer protection in that space.
Now might be a could time to update your marketing strategies.
How can Onyx Legal help you?
If you have any concerns about a proposed campaign, or existing campaigns, and would like a review, make an appointment to discuss that with one of our team.