Are you considering sharing investment advice on your social channel? Finfluencers can play an important role in their followers’ financial lives, but there are things you should know before giving out any investment advice. Depending on exactly what you say and do, you may be engaged in activity regulated by securities laws. And the consequences of acting outside of securities laws can be serious. Find out more.
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What are the concerns about finfluencers’ advice?
A “finfluencer” is a financial influencer who uses social media to post about managing money, investing, or achieving financial goals.
Finfluencers can reach wide and diverse audiences. Many young and new retail investors rely on social media for information about investing. Finfluencers can help people understand the importance of investing, popularize financial topics, and provide information in a way that’s easy to understand. Finfluencers can also help draw attention to common financial scams and offer practical advice on how to avoid them.
But there are some finfluencers whose activities introduce risks for investors including:
- Spreading misleading or biased information about investing or investments.
- Promoting higher-risk or complex investment products.
- Encouraging investment in products where they have an interest without disclosing it to investors.
- Encouraging followers to invest in securities that may be unsuitable for them and don’t further their financial goals.
- Providing low quality or inaccurate information.
In addition, some finfluencers may intentionally or unintentionally be involved in wrongdoing, including schemes to manipulate the price of a security, misrepresenting facts about issuers of securities, frauds and scams.
Any of these activities can lead to poor investment returns or losses.
Securities regulators are taking action to address these risks as part of their investor protection mandate. This includes enforcement interventions and publication of new guidance for finfluencers and firms that work with them to ensure compliance with securities laws.
If you are thinking about providing investment advice through social media, or already consider yourself a finfluencer, you should ensure that your activities are in compliance with securities laws. The Canadian Securities Administrators (CSA) together with the Canadian Investment Regulatory Organization (CIRO) have published a notice to help finfluencers understand the activities that may give rise to obligations under securities laws. If you are uncertain where your activities fit after reading the notice, we encourage you to get professional legal advice.
How do securities laws apply to finfluencers?
Investor protection is an important part of securities laws. Securities laws can extend to a range of finfluencer activities including videos, online postings, text messages, and more. And these laws can apply to a finfluencer, regardless of whether they are a real person or a computer-generated digital avatar (also referred to as a digital influencer) controlled by a person or organization. The same principles apply to the use of artificial intelligence (AI). If you create an AI agent or use AI to provide advice about investing, to promote investments or anything else that is subject to securities laws, you may be held responsible for what the AI does as if you had done it directly.
If you offer advice about investing, you may be required to become registered with securities regulators, unless there is an exemption from registration that you can rely on. The notice discusses how an exemption for “general advice” (meaning not tailored to any one person) may be available for some finfluencer activity. Additionally, if you are involved in promoting a company’s stock or rely on certain exemptions from registration, you may be required to disclose specific information as part of your content.
Securities regulators monitor finfluencer activity. The consequences of acting outside of securities laws can be serious.
Learn more by reading the full notice.
What are examples of securities law applied to finfluencer activity?
The notice includes examples to help finfluencers understand how the rules may apply to their activities. Here are two (there are many other possible situations as well):
Crypto assets, general advice and disclosure: Ethan’s story
Ethan is a crypto enthusiast and regularly posts information on social media about initial token offerings of crypto asset projects that he believes in. Many of the tokens he likes appear to meet the definition of securities. Ethan is not paid by the founders of those crypto asset projects and does not have a personal or financial incentive to recommend those assets.
Depending on the circumstances, including the frequency with which Ethan engages in these activities, Ethan could be in the business of advising. However, since Ethan’s recommendations are not tailored to the needs of a specific individual, he may be able to rely on the general advice exemption in Ontario.
Ethan is excited about the initial token offering of LUCKY, a new crypto asset. The foundation’s marketing strategy includes an airdrop. Ethan signs up to participate in the airdrop, in which he will be rewarded with LUCKY tokens if he carries out certain marketing tasks. Ethan starts immediately posting on social media “$LUCKY 🚀🌕. You should buy it!” and creating memes that are funny and shareable. He also creates a Telegram group and Discord channel to encourage others to join and “raise the $LUCKY”.
Ethan is recommending buying a security (i.e., the LUCKY token). He would be in the business of advising in securities since he regularly recommended buying this token and he is compensated for it. If he is careful not to tailor that advice to any one particular individual, he may be able to rely on the general advice exemption, but he would then be required to disclose his financial interest when he recommends investing in $LUCKY.
This catches the attention of UNOCoin, which is the issuer of securities and UNOCoin decides to retain Ethan as a “brand ambassador”. In this role, Ethan receives monthly payments and performance bonuses in exchange for ongoing content creation about the project and its securities. He limits his content to general discussion and does not recommend UNOCoin to any one particular investor.
In his postings related to UNOCoin Ethan provides the following disclosure: “I get monthly payments from UNOCoin for sharing posts like this, and if you use this affiliate link to purchase UNOCoins, I will receive a commission from UNOCoin at no additional cost to you.”
Securities regulators would consider Ethan’s activities for UNOCoin to be advising activities. Since the advice is not tailored to any particular person, Ethan can continue to rely on the general advice exemption, but Ethan must continue to disclose his financial interest each time he recommends UNOCoin’s securities.
It is important to note that the disclosure Ethan gives in this example is specific to the example and not an all-purpose disclosure. Ethan will need to tailor his disclosure if his compensation arrangements with UNOCoin should change.
However, if Ethan goes on to share a link enabling his followers to buy and sell UNOCoin’s securities on a trading platform and is paid by the followers or the platform, he would be undertaking acts in furtherance of a trade and be required to become registered.
“I didn’t know!” is not a defense: Jacob’s story
Jacob follows finfluencers on YouTube and X. He was inspired by these finfluencers and decided to build his own online following by posting about his personal investments. Jacob gained tens of thousands of subscribers across various platforms, including YouTube.
Companies took notice of his following and asked him to post content promoting the purchase of their securities in exchange for payment. Jacob agreed and started making videos promoting the purchase or sale of the companies’ securities on YouTube and posts on X.
Jacob stated in one of his YouTube videos: “I own 1,000 shares of company XYZ at a dollar. I wouldn’t be surprised if the value tripled by this time next year.”
Few of Jacob’s posts disclosed that they were made on behalf of a company. In fact, Jacob found that disclosing his sponsorship resulted in fewer views. Some of the videos included a disclaimer and sponsorship notice, but these were hidden unless the viewer scrolled down and clicked “Show More”.
Jacob was investigated and prosecuted. He was found to be contravening, among others, securities laws which require disclosure when statements are made by or on behalf of an issuer. Jacob’s ignorance of the law was no defence to this contravention, and he was subject to sanctions.
Read about one more finfluencer case study in the staff notice.
Summary
If you are sharing investment advice on your social channels, you should familiarize yourself with the rules. You may be engaged in activity regulated by securities laws depending on what you post. And the consequences of acting outside of securities laws can be serious. The CSA-CIRO Staff Notice provides guidance on how securities laws apply to the activities of social media financial influencers and to registered firms, registered individuals, and companies who work with them. If you are uncertain where your activities fit after reading the Staff Notice, we encourage you to get professional legal advice.
