Protecting Consumers and Capital Markets in the Age of Social Media: the Case of Finfluencers

Financial influencers and content creators, commonly referred to as ‘Finfluencers’, increasingly provide unpaid or paid finance content on social media. This non-expert financial advice can potentially cause significant financial and non-financial harm, especially for financially illiterate consumers. A Financial Conduct Authority (‘FCA’) study revealed low financial literacy levels among retail investors. For example, 38 per cent of surveyed investors could not list a single reason for investing in their top three investments, with most investors relying on rules of thumb and gut instinct. The shocking findings of the FCA study partly inspired my article Regulating Finfluencers. My paper investigates the practices and business models of Finfluencers and how EU law, three national jurisdictions (the UK, Luxembourg, and Germany), and five social media platforms govern their activities. The primary aim is to comprehend the activities and regulation of Finfluencers and to critically examine whether the current framework adequately protects consumers.

Finfluencers engage in several activities, such as sharing educational content on social media to generate revenues by the number of views. Finfluencers also provide services and products, eg, one-on-one coaching and investment courses. Other Finfluencers also advertise third-party products, for example, affiliate links for broker platforms. Some Finfluencers engage in fraudulent activities like market manipulation or scams. Regardless of the activity, platforms benefit through the generated web traffic. However, under EU law platforms are required to remove illegal content as soon as they become aware of it.

Finfluencer activities are regulated and shaped in several ways, particularly concerning hidden marketing, advertising financial products, and platform rules.

First, the national rules implementing the maximum harmonisation of the EU Unfair Commercial Practices Directive govern hidden marketing. Sponsored content must be disclosed to viewers (Section 11 of Annex I) and several practices, such as falsely representing oneself as a consumer (Section 22 of Annex I), are always unfair under the Directive’s exhaustive ‘black list’. The national and the Court of Justice of the European Union case law on the Directive’s general test also bans several practices.

Second, advertising financial products is regulated by several instruments, including the Market Abuse Regulation 596/2014, the Commission Delegated Regulation 2016/958, and the MiFID II Directive 2014/65. Finfluencers disseminating investment recommendations must present the information objectively, disclose any interests or conflicts of interest, and include several mandatory disclosures. Investment brokerage and individual advice are also subject to national authorisation schemes and otherwise strictly prohibited. Furthermore, according to the  European Securities and Markets Authority, ‘claiming something is not an investment recommendation and/or someone is not an expert’ is not a valid defence.

Finally, my paper revealed that social media platforms extensively govern Finfluencers. Some platforms even developed their own principles and ‘gold-plated’ applicable legal rules. For instance, Twitter has an extensive ‘Global Ban and Restriction Policy’ for finance content tailored to each jurisdiction.

My article concludes with policy considerations concerning the introduction of a positive duty to trade fairly, adding further targeted disclosure requirements to increase transparency, and several broader implications for platform governance and liability. Urgent action is required to adequately protect consumers and capital markets from the potential harm of finfluencing.

Felix Pflücke is a Postdoctoral Research Fellow in Law at the University of Luxembourg and a Stipendiary Lecturer in Law at the University of Oxford.