Introduction
Financial influencers, often known as “finfluencers”, have become increasingly prominent voices, especially among younger Australians seeking financial guidance. Given this growing influence, the Australian Securities and Investments Commission (ASIC) is actively monitoring discussions about financial products and services on social media platforms. Consequently, it is crucial for every financial influencer to understand and comply with Australian financial services laws.
This guide offers essential information for financial influencers to navigate the Australian financial services regulatory landscape and avoid breaking the law by providing unlicensed financial services. It will clarify when an Australian Financial Services (AFS) Licence is required and highlight key legal obligations, including the significant penalties under the Corporations Act 2001 (Cth) for providing unlicensed financial product advice.
When is an AFS Licence Required for Finfluencers?
Finfluencer Activities Requiring an AFS Licence
Finfluencers must obtain an AFS Licence if they engage in specific financial activities that fall under regulatory scrutiny. The primary activities that necessitate holding an AFS Licence include:
- Providing Financial Product Advice: Offering personalised recommendations or advice regarding specific financial products mandates an AFS Licence. This encompasses analysing products, suggesting investments, or tailoring advice to individual circumstances. Even general statements can be interpreted as financial advice if they imply a recommendation, thereby requiring an AFS Licence.
- Arranging for Followers to Deal in Financial Products: Facilitating transactions or directing followers to engage with financial products or services also requires an AFS Licence. This includes referral arrangements or acting as an intermediary between followers and financial institutions. Activities that actively involve finfluencers in their audience’s financial transactions fall under this category.
Exemptions and Authorised Representatives
Certain activities may be exempt from requiring an AFS Licence, allowing finfluencers to operate without an AFS Licence. These exemptions include:
- Providing General Financial Information: Sharing non-specific financial advice or general market insights without offering personalised recommendations.
- Educational Content: Offering educational materials and resources without directing followers towards specific financial products or services.
- Acting as an Authorised Representative: Operating under the umbrella of a licensed entity as an authorised representative, thereby leveraging their licence for compliance.
Understanding these exemptions is vital for finfluencers to determine whether their activities fall within regulatory bounds or require an AFS Licence.
Practical Examples Illustrating Licence Requirements
To clarify when an AFS Licence is needed, consider the following scenarios:
- Licensed Activity: A finfluencer conducts detailed analyses of financial products and advises followers on specific investments, such as recommending particular stocks or financial instruments. This activity requires an AFS Licence.
- Exempt Activity: A finfluencer shares broad economic trends and provides educational content about financial markets without directing followers to invest in specific products. This activity typically does not require an AFS Licence.
These examples demonstrate the nuanced distinctions between a finfluencer’s activities that either require an AFS Licence and those that fall under exemptions.
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Penalties and ASIC Enforcement for Unlicensed Operations
Operating as a finfluencer online without an AFS Licence where an AFS licence is required is a serious violation of the Corporations Act 2001 (Cth). Breaching this Act carries significant repercussions for individual finfluencers and businesses alike:
- Criminal Penalties for Individuals: Individuals may face severe criminal penalties, including imprisonment for up to five years and/or substantial fines.
- Corporate Penalties: Corporations can be subjected to fines reaching into the millions of dollars.
- Civil Penalties: Besides criminal and corporate fines, civil penalties may also be imposed for operating without the required licence.
To enforce these regulations, ASIC is equipped with substantial powers to take action against those operating without an AFS Licence. These enforcement powers include:
- Issuing Stop Orders: To immediately halt unauthorised financial services activities.
- Freezing Assets: To secure funds and assets linked to illegal operations.
- Seeking Court Orders: To pursue legal actions, potentially winding up businesses operating without proper licensing.
- Banning Individuals: To prohibit individuals from managing corporations or providing financial services in the future.
- Requiring Compensation: To mandate that offenders compensate clients who have suffered losses due to unlicensed activities.
ASIC’s proactive monitoring and enforcement actions underscore the importance of understanding and strictly complying with AFS Licence requirements. Non-compliance not only results in severe legal and financial repercussions but also damages the reputation and trustworthiness of finfluencers within the financial community.
Steps to Determine If You Need a Licence
To ascertain whether your activities require an AFS Licence, follow these steps:
- Identify Your Services: Clearly outline the financial services you intend to provide to your audience.
- Assess Licensing Requirements: Compare your services against ASIC’s AFS Licence criteria.
- Consider Exemptions: Determine if any of your activities qualify for exemptions or if you can operate as an authorised representative.
- Consult Legal Advice: When in doubt, seek professional legal counsel to ensure full compliance with regulatory requirements.
- Apply for a Licence if Necessary: If your activities fall within the scope of requiring an AFS Licence, initiate the application process with ASIC to obtain the necessary authorisation.
By following these steps, finfluencers can effectively navigate the regulatory landscape and ensure their operations remain compliant with Australian financial services laws.
Key Legal Obligations for Finfluencers to Avoid Breaching the Law
Ensure Content is Factual and Balanced
It is crucial for finfluencers to ensure that all content shared about financial products and services is both factual and balanced. Content should be:
- Accurate and Truthful: All statements made must be truthful and able to be substantiated to ensure compliance with the law.
- Avoid Misleading or Deceptive Information: Finfluencers must avoid making statements that are misleading or deceptive, as prohibited under the Corporations Act 2001 (Cth).
When discussing financial products, finfluencers should present a balanced view that includes both potential benefits and risks. For example:
- Potential Returns: If a finfluencer discusses potential returns from a financial product, they should also highlight any associated risks with similar prominence.
- Realistic Understanding: This approach ensures that followers receive a realistic understanding and are not swayed by unsubstantiated claims or a one-sided perspective.
Avoid Giving Unlicensed Financial Advice
Finfluencers must be careful not to provide financial product advice that requires an AFS Licence. Providing financial product advice includes making a recommendation or expressing an opinion intended to influence someone’s decision about a financial product.
If finfluencers are deemed to be carrying on a financial services business by providing financial product advice, they must:
- Hold an AFS Licence; or
- Operate as an Authorised Representative of an AFS Licensee (unless an exemption applies).
To avoid giving unlicensed financial advice, finfluencers should:
- Focus on Factual Information: Share factual information rather than personal opinions or recommendations.
- Describe Features and Terms: Include descriptions of the features, terms, and conditions of financial products.
However, even when presenting factual details, finfluencers should exercise caution to ensure that the way information is presented does not imply a recommendation to invest in a particular financial product or class of products.
Due Diligence on Paid Promotions and Sponsors
Finfluencers should exercise caution and perform due diligence when considering paid promotions and sponsorships related to financial products and services. Before entering into any paid arrangements, finfluencers should:
- Investigate Credibility and Compliance: Assess the credibility and regulatory compliance of the entities that are paying them;
- Understand Terms and Conditions: Fully comprehend the terms and conditions of any agreements; and
- Align Values with Sponsors: Ensure that the values of the sponsor align with their own.
Transparency is also key when it comes to paid promotions. Finfluencers should:
- Disclose Remuneration or Benefits: Clearly inform their audience about any remuneration or benefits received for promoting financial products; and
- Manage Potential Conflicts of Interest: Maintain transparency to ensure followers are aware of any commercial relationships that could influence the finfluencer’s content.
By adhering to these legal obligations, finfluencers can maintain trust with their audience and ensure compliance with Australian financial regulations, thereby avoiding potential legal repercussions.
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Case Study: ASIC v Scholz – Implications for Finfluencers
Key Findings in ASIC v Scholz
The Federal Court’s decision in Australian Securities and Investments Commission (ASIC) v Scholz (No 2) [2022] FCA 1542 is a landmark case for finfluencers. In this case, the court examined whether Mr. Tyson Robert Scholz, a social media influencer known as ‘@ASXWOLF_TS’ on Instagram, was operating a financial services business without the required AFS Licence. ASIC initiated proceedings against Mr. Scholz, alleging that he contravened section 911A(1) of the Corporations Act 2001 (Cth) by carrying on a financial services business without holding an AFS Licence.
The court found that Mr. Scholz was indeed carrying on a financial services business by providing financial product advice without an AFS Licence. Justice Downes highlighted that Mr. Scholz provided financial product advice as an integral part of his business operations. This advice was not a one-off occurrence but rather a continuous and systematic part of his business, from which he derived profit. Additionally, the court considered that Mr. Scholz delivered training courses about ASX trading and gave recommendations about share purchases through private online forums and his Instagram account.
Lessons for Finfluencers from the Scholz Case
The ASIC v Scholz case provides critical lessons for financial influencers. It reinforces ASIC’s warnings that discussing financial products and services online can lead to regulatory scrutiny and potential enforcement action. Specifically:
- Licensing Requirements: If finfluencers cross the line into providing unlicensed financial product advice, it can be deemed as operating a financial services business without the necessary AFS Licence.
- Legal Compliance: Finfluencers must understand that their online activities are subject to Australian financial services laws.
- Obtaining AFS Licence or Exemptions: The case underscores the importance of either obtaining an AFS Licence or ensuring their activities fall within legal exemptions.
- Enforcement Risks: ASIC Deputy Chair Sarah Court has explicitly warned that finfluencers who discuss financial products and services on social media may face enforcement action if they are carrying on a business of providing financial services without a licence.
This case serves as a reminder that financial services laws are in place to protect investors, and operating under an AFS Licence provides both investors and financial service providers with important protections.
Conclusion
It is crucial for financial influencers to understand and adhere to Australian financial services laws. Operating within the legal boundaries is essential, and this includes ensuring all shared content is factual, balanced, and not misleading. When in doubt about their obligations under these complex regulations, finfluencers should always seek professional legal advice to ensure they remain compliant.
For financial influencers and businesses seeking clarity and guidance on navigating the complexities of Australian financial services licensing, book a free initial consultation with our industry-leading AFS Licencing Lawyers at AFSL House. Our specialised expertise in this area can help you understand your obligations, explore available exemptions, and where necessary, help you obtain your own AFS Licence, ultimately enabling you to operate legally and ethically on social media within the Australian financial market.
Frequently Asked Questions
Finfluencers do not always need an AFS Licence to discuss financial products online, but it depends on the nature of their discussions. An AFS Licence is required if they are carrying on a financial services business, such as providing financial product advice or dealing by arranging, unless they operate under an exemption or as a representative of an AFS licensee. If finfluencers are only providing factual information or general discussions without giving recommendations or opinions that could constitute financial product advice, they may not need an AFS licence.
Operating as a finfluencer without an AFS licence when required can result in significant penalties under the Corporations Act 2001 (Cth). These penalties can include criminal charges with imprisonment for an individual for up to five years and substantial fines reaching into the millions of dollars for a corporation. Civil penalties may also apply, and ASIC can take enforcement action against finfluencers providing unlicensed financial services.
A finfluencer can provide factual information without giving financial advice by focusing on presenting objective details about financial products and services. This involves describing the features, terms, and conditions of financial products without making recommendations or expressing opinions that could be intended to influence a follower’s decision. It is crucial to ensure that the information is presented in a balanced way and does not imply any endorsement or suggestion to invest in specific financial products.
Sharing personal investment experiences by finfluencers can be problematic and may constitute financial product advice if it is presented in a way that could influence followers to make similar financial behaviours as a result. If these experiences are shared in conjunction with paid promotions or if they imply a recommendation for certain financial products, it is more likely to be viewed as providing financial product advice, potentially requiring an AFS licence. Finfluencers should exercise caution when sharing personal experiences to avoid inadvertently providing unlicensed financial advice.
If finfluencers are unsure whether they need an AFS licence, they should seek professional legal advice to clarify their obligations under Australian financial services laws. Consulting with legal experts who specialise in Australian Financial Services licensing will help finfluencers assess their specific situation and ensure they are operating in compliance with the law. Seeking advice is a crucial step to avoid potential breaches of the Corporations Act 2001 (Cth) and the associated penalties.
Yes, AFS licensees can be held responsible for the actions of finfluencers they use, as licensees may be liable for misconduct by influencers acting on their behalf. AFS licensees must conduct due diligence on finfluencers, implement risk management and monitoring processes to ensure influencers do not provide unlicensed financial services, and ensure finfluencers comply with financial services laws. ASIC’s Information Sheet 269 also includes warnings for AFS licence holders who engage finfluencers.
Finfluencers should undertake thorough due diligence when considering paid partnerships, especially those in relation to financial products. This includes checking the credibility and compliance of the sponsoring entities, understanding the terms and conditions of any agreements, and ensuring transparency by disclosing any remuneration or benefits received for promoting financial products and services. Due diligence helps finfluencers maintain ethical standards and avoid promoting potentially harmful or misleading or deceptive content.
Unlicensed finfluencer activity can be reported to ASIC. Reports can be made via the ASIC website through their ‘How to complain’ page or by calling ASIC directly on 1300 300 630. Reporting unlicensed financial services helps ASIC monitor the market and take appropriate regulatory action to protect consumers and maintain market integrity.
Yes, there are limited exemptions for finfluencers from needing an AFS licence, but these are specific and should not be relied upon without professional legal advice. One exemption relates to providing general advice in publicly available recordings, provided the primary purpose is not financial product advice and any remuneration is disclosed. Finfluencers should not assume they qualify for an exemption and must seek legal advice to confirm their eligibility and ensure they comply with the law.