The financial regulator wants to engage finfluencers, while taking enforcement action against those providing financial advice without authorisation. (Image created via Gemini)
The Financial Sector Conduct Authority (FSCA) has already fined several finfluencers for regulatory breaches, warning that influencers who offer financial advice without adequate authorisation could face enforcement action.
The warning was delivered during a virtual FSCA Regulatory Actions Report Media Roundtable earlier this month, by Gerhard van Deventer, divisional executive for enforcement at the FSCA.
He highlighted online financial harm as one of the financial regulator’s highest enforcement priorities, as it intensifies scrutiny of so-called “finfluencers” who offer investment, personal finance and trading advice to millions of followers using social media platforms.
The regulator has also identified misinformation and scams distributed through social media among the highest risks facing financial consumers, he stated.
Van Deventer said finfluencers are not exempt from the laws governing financial advice simply because they operate through social media platforms.
“Finfluencers, or anybody else for that matter, are not in a special position. We have a law that says you are not allowed to provide financial advice or intermediary services if you are not properly licensed,” he explained.
“Individuals who provide regulated financial advice or intermediary services without the required authorisation can face regulatory consequences. We have imposed penalties on finfluencers before, so the message is clear. We are also looking at finding a way to reach out to them so we can engage with them and ensure they understand the legalities around providing financial advice.”
According to the regulator, the distinction between financial education and financial advice is becoming increasingly important as more South Africans turn to social media personalities for information about investments, trading and financial products.
Van Deventer said the licensing requirement is intended to ensure people providing financial advice understand the products they are recommending and the risks involved.
“That is the licence that ensures you know what you’re talking about, you understand the risks, you understand that you must warn the client about suitability. A retired person shouldn’t be investing in Irish financial products and similar toxic products out there, etc, so we want them to know all about that before they give financial advice.”
However, Van Deventer cautioned against portraying all finfluencers as problematic, saying some are doing valuable work by warning the public about scams and repeating warnings issued by the regulator. Finfluencers can also improve financial literacy by making complex financial concepts easier for the public to understand.
[PICTURE] Gerhard van Deventer
[CAPTION] Gerhard van Deventer, divisional executive for enforcement at the FSCA.
Gateway to investment scams
The issue of unlicensed finfluencers is becoming more significant as video-based platforms − such as TikTok, Instagram and YouTube − have created a large market for financial content. This allows individuals to reach substantial audiences without necessarily having the qualifications, or regulatory status of a conventional financial adviser.
A global report by trading broker FXTM found that one in four finance-related videos on TikTok, reviewed by researchers, raised concerns about accuracy, highlighting the risks posed by finfluencers.
The FXTM study audited 72 TikTok videos across regions using popular hashtags, including #FinanceTok, #TradingTips, #ForexTips, #CFDTrading and #SideHustle, to better understand the financial content young audiences are consuming.
Among the videos reviewed, researchers identified three that were classified as outright misleading. “The videos all promoted CFD trading through unproven scalping strategies, using the same format as legitimate analysis: confident voiceovers, chart overlays, bold claimed returns, without any regulation, disclosure, or accountability,” notes the report.
The FSCA previously said the rapid rise of finfluencers across SA’s social media platforms is a double-edged sword – representing both unprecedented opportunities for financial inclusion and significant risks related to misinformation.
“Consumers should be cautious about acting on financial information shared by popular online personalities, as influence and visibility do not necessarily equate to expertise or regulatory authorisation,” it said at the time.
Van Deventer also linked the regulator’s work with influencers to broader concerns around scams and consumer protection.
The regulator is watching for cases where social media content moves from general financial information, towards recommendations about specific financial products, which may not be legitimate.
“The concern is particularly relevant where an influencer has an established audience and can direct that audience towards a particular product or investment opportunity.”
The regulator is therefore seeking to engage with influencers, while continuing to monitor potential breaches, with previous penalties demonstrating that enforcement action is already part of its response.
“The aim is to make sure influencers understand the line before they cross it, while making clear that those who provide financial advice without the necessary authorisation can face action,” he explained.
