ASIC issues ultimate ‘challenge’ to influencers

By David Stewart Thaw Thaw Htin

23 March 2022

On Monday ASIC released an Information Sheet (Info 269) aimed squarely at putting social media influencers, and those who use them to market their financial products and services, on notice that their content may be in breach of the Corporations Act 2001 (Cth) (the Act) (which sets out a licensing regime for the provision of financial advice) or a number of other Australian laws.

ASIC has previously publicly indicated that it is investigating breaches of the financial services laws in social media, and some so called ‘finfluencers’ have been under scrutiny.¹ In July 2021, a representative of ASIC told those at MarketLit, Australia’s first millennial and Gen Z investment conference, that whilst there were challenges in monitoring social media activity, ASIC considered there were 3 fundamental areas that people needed to be aware of:

1. Were people providing a financial service without being appropriately licenced?
2. Were misleading or deceptive statements being made?
3. Was there market manipulation and interference with the fair operation of a market (example, pump and dump of stocks)?

In its Information Sheet ASIC makes clear that ‘finfluencers’ and their affiliates who breach the financial services laws may be liable to significant penalties including imprisonment and financial penalties into the millions of dollars.

It is significant to note that ASIC’s Information Sheet does not announce any new laws or amendments to the existing laws. It is an open and direct warning of the effect of the existing law on social media influencers operating in the financial services arena. As we discuss below, this brings with it a salient warning for all social media influencers – including those who are not associated with the financial services industry.

What conduct is in breach of the Act?

To provide advice about a financial product you must hold an Australian Financial Services Licence (AFSL) or be the authorised representative of an AFSL holder.

Financial product advice is defined as a:²

1. recommendation or a statement of opinion or a report;
2. that is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or
3. could reasonably be regarded as having intended to have such an influence.

This is a question of fact. It should be noted that merely stating that you are not a financial adviser or that your content is not financial advice is not sufficient to avoid a breach of the law. A breach of the Act may occur even where viewers were not actually influenced to make a particular decision.³

Exceptions

Communications that do not involve a recommendation or opinion but which include purely factual information are generally not considered to be financial product advice. Factual information may constitute financial product advice if it is presented in a manner that may be regarded as suggesting and implying a recommendation to buy, sell or hold a financial product or class of products.⁴

There are also exceptions where general advice is provided:⁵

1. by publishing a newspaper or periodical that is generally available to the public (otherwise than only on subscription) and where the sole or principal purpose of the newspaper or periodical is not the provision of financial product advice;⁶
2. in transmissions made by means of an information service where the transmissions are generally available to the public and where the sole or principal purpose of the transmissions is not the provision of financial product advice;⁷ or
3. in sound recordings, video recordings or data recordings that are made publicly available and where the sole or principal purpose of the recordings is not the provision of financial product advice.⁸

Although the terminology used in the Act (drafted over 20 years ago) does not reflect the reality of current technology, the vast majority of social media content in this space comprises sound recordings, video recordings or data recordings.

The definition of general advice is not clear cut. It is defined as advice which is not personal advice, being advice which considers a person’s objectives, financial situation or needs.⁹

Those discussing financial products and services online need to be very careful that their content does not stray outside of being factual information or, if an exception applies, general advice.

Who does this affect?

ASIC has noted that those who seek to pay ‘finfluencers’ for their endorsements will be caught by the provisions regarding dealing in a financial product and dealing by arranging whether or not they themselves hold an AFSL. By paying a ‘finfluencer’ to promote their financial services or products, the sponsor may be liable for the advice offered by their ‘finfluencers’ in breach of the Act if they are found to have caused, endorsed or authorised the advice.¹⁰

Market manipulation schemes

The use of social media to recruit traders into ‘pump and dump’ schemes (a plan to manipulate the market to raise the price of a share to sell before it crashes) was brought to international attention in 2020 when Reddit users banded together to drive up the share price of GameStop.¹¹

Social media has been identified by ASIC as an increasing medium through which ‘blatant attempts’ are made to manipulate the market. ASIC has identified that it is taking steps to counter such activity.¹²

Social media requirements

The main platforms identified by ASIC, TikTok and Instagram, do not prohibit the provision of financial advice by its users, despite contemplating the prohibition of certain types of financial services by users in their terms and conditions. For example, TikTok’s terms and conditions include the following relevant to financial services:

Some financial services and products are always prohibited, including but not limit to pyramid schemes (including non-financial services), credit repair services, bail bonds, get rich quick schemes, penny auctions and virtual currencies.

Others are restricted and may be able to run through paid ads, such as foreign exchange, loans, and credit cards, buy now pay later (BNPL) services, debt consolidation services, investment services, lending and management money assets, and trading platforms.

This list is not exhaustive.

TikTok Australia lists certain classes of products that are prohibited on its platform. At the time of writing, the list of prohibitions did not include financial products or services.¹³

Without the social media platforms monitoring User Generated content (USG), it will be very difficult, even with natural language processing technology and other regtech¹⁴, for ASIC to review, identify and prosecute all of those who breach the Act. This is likely to be why ASIC’s Information Sheet repeatedly states that it is focusing on ‘selected finfluencers’.¹⁵ Given ASIC’s position, it is reasonable to assume that ASIC is likely to make an example of those high profile influencers who they identify as acting in breach of the Act.

Misleading or deceptive claims

Content producers should be aware that it is not just ASIC who may take action. ‘Finfluencers’ may find themselves the subject of civil claims by those misled or deceived by their USG. Content producers who provide erroneous advice or create misleading USG may be the subject of claims for compensation by duped viewers.¹⁶

What the Information Sheet does not say is that Australia’s laws regarding misleading and deceptive conduct apply equally to social media influencers operating in spaces other than financial services. To that extent, the Information Sheet is a stern reminder to all influencers that they may be liable to civil claims if their USG – about any product or service – is misleading or deceptive, including a failure to adequately disclose that the USG is sponsored.¹⁷

Copyright and moral rights

Similarly, the Information Sheet does not touch on breach of copyright or moral rights being brought against influencers who use other people’s USG without properly crediting it. All social media influencers bear these risks – not only those operating in the financial services space.

What now?

Content creators on TikTok, Instagram and other platforms, and anyone who sponsors them or their USG, should be aware that one of their many viewers may be an ASIC investigator checking to see whether content spruiking financial products or services is in breach of the law.

All social media influencers, even those who do not work with financial products and services, should heed ASIC’s warning not to mislead or deceive consumers. The community (assisted by decisions issued by AdStandards and by a Code Practice created by the Australian Influencer Marketing Council) is quickly coming to understand the legal remedies available when misconduct by an influencer translates into real loss and damage.

For more information, please contact the authors:
Thaw Thaw Htin | Principal
David Stewart | Principal
Fabienne Sharbanee | Principal Associate

1. https://www.businessinsider.com.au/asic-review-australian-finance-influencers; https://www.afr.com/markets/equity-markets/finfluencers-back-asic-crackdown-on-bad-actors-20210625-p584cg
2. Section 766B(1) of the Act. There are exemptions.
3. ASIC v Park Trent Properties Group Pty Ltd (No.3) 2015 NSW SC 1527.
4. See ASIC Regulatory Guide 244 Giving Information, general advice and scaled advice
5. Sections 911A(2)(eb) and (ec) of the Act.
6. s911A(2)(ea) of the Act
7. s911A(2)(eb) of the Act
8. s911A(2)(ec) of the Act
9. Section 766B(4); See ASIC Regulatory Guide 175 Licensing: Financial product advisors
10. ASIC Regulatory Guide 36 Licensing: Financial product advice and dealing
11. https://www.smh.com.au/business/banking-and-finance/tiktok-finfluencers-under-scrutiny-amid-pump-and-dump-concerns-20210914-p58rh1.html
12. https://asic.gov.au/regulatory-resources/markets/market-supervision/disrupting-pump-and-dump-activity-on-social-media/
13. The prohibited products include weight loss products, non-alcoholic drinks from alcoholic brands, ads promoting adoption or surrogacy, therapeutic goods, infant food, charities, certain dating apps, etc.
14. James Eyres, “ASIC to use AI to target misleading advertising”, Australian Financial Review, 3 March 2019
15. https://asic.gov.au/about-asic/news-centre/articles/regulatory-risk-and-finfluencer-engagement-for-company-directors/
16. Sections 12DB and 12DA of the Australian Securities and Investments Commission Act 2001 (Cth).
17. See ACCC v Australian Medical Institute Pty Ltd (No. 3) [2006] FCA 1066 (15 August 2006); ACCC v. Allergy Pathway (No. 2) [2011] FCA 74 (10 February 2011); Australian Association of national Advertisers’ Code of Ethics Sections 1.2 and 2.7 (“Advertising shall be clearly distinguishable as such.”) 

Disclaimer: The information published in this article is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.