Finfluencers are generally understood to be individuals who share investment-related content on social media. They “wield considerable influence over their followers’ attitudes and decisions”, a phenomenon most closely associated with a younger audience who obtain a significant amount of their information online and are comfortable establishing relationships with social media performers despite having limited or no interactions with them.
According to a IOSCO final report specifically focusing on their rapid emergence their reach is rapidly growing. The report cites a FINRA and CFA Institute study published in 2023, which points that an astonishing 37% of US Gen Z retail investors said that finfluencers “were a major factor in their decision to invest.”
Their ability to reach a wide and diverse audience and explain intricate financial concepts in an easy-to-understand way is a positive as it not only educates, but also raises awareness about the importance of investing. A positive consequence of their reach and sway is the broadening of participation in financial markets.
While they can be a force for good, regulators are increasingly grappling with the risks to retail investors associated with their activities. The key risks identified in the report are:
| Risk | Consequence |
| Lack of licensing | Those not authorized to provide investment advice are frequently the most likely to promote potentially higher risk or more complex investment products that are unsuitable for most investors. |
| Fraud and scams | Intentional, but more frequently inadvertent promotion of products and services that either do not exist, lead to very poor outcomes or represent a conflict of interest. Dissemination of various market manipulation schemes, including pump-and-dump, scalping as well as insider trading all exacerbated by the high speed at which such information can be spread. |
| Promotion of risky, inappropriate and unsuitable products | Promises of quick, high returns usually unaccompanied by any references to the associated risks can mislead followers to invest money that they cannot afford to lose. |
| Misleading content | While promoting themselves as experts, the advice provided is both low quality and is more likely to lead to investor loss. Financial incentives mean that some misleading content is intentionally published with no balanced discussion of the risk involved and significant potential for investor harm as a result. |
| Conflicts of interest and lack of disclosure and transparency | Remuneration received from market intermediaries by finfluencers is not regularly disclosed and generally constitutes a conflict of interest that prevents followers from assessing their advice, can mislead and, ultimately can undermine financial market integrity. |
| Celebrity endorsements and fake websites | Such endorsements have spread to financial markets by way of social media with names and images of celebrities sometimes used without their knowledge and permission – a trend that is being accentuated by the emergence of generative AI that can create convincing, but fake endorsements. |
| Use of finfluencers by regulated market intermediaries | Finfluencers are leveraged to promote brand, products or services, but despite contractual and commercial relationships in place firms can struggle to monitor actual finfluencer activity, particularly given the variety of platforms being employed. |
Although regulators are making real strides in addressing some of these risks, the current regulatory landscape is a patchwork. Fundamental challenges include a lack of a consistent definition of finfluencer and significant legislative and regulatory gaps. These are especially prominent because of the intrinsic cross-border nature of social media.
Regulatory frameworks are better able to deal with the use of finfluencers by registered intermediaries with well-developed laws covering areas such as:
- Financial advice;
- Advertising (including recordkeeping);
- Inducements
- Disclosure;
- Market manipulation;
- Dealing by arranging;
- Misleading and deceptive conduct; and
- Product governance rules.
The difference between a well-established and nascent regulatory regimes is most apparent in enforcement actions. Those aimed at finfluencers themselves tend to be sporadic and most frequently involve widely celebrities or widely recognized figures with a very large following. In contrast 23% of the regulators responding to the survey had taken supervisory action against intermediaries using finfluencers and 44% reported taking enforcement action.
The report concludes by listing some proposed good practices for securities regulators as well as finfluencers and intermediaries. Most of these recommendations are generic and obvious. But what is clear is that a significant amount of further work on both laws and regulations as well as policies, procedures and systems is needed in order to ensure that risks stemming from finfluencer activity can be managed appropriately.