Finfluencer Crackdown

Australia sues Facebook, and a new Financial Advertising Code

Over the last month, regulatory bodies in Australia and New Zealand have taken aim at misleading (or sometimes downright dodgy) financial advertising.

ASIC warnings

The Australia Securities and Investments Commission (ASIC) has become increasingly concerned about social media influencers who are reportedly earning up to six-figure salaries from deals promoting financial services on social media platforms. Under Australian law, only licensed individuals are permitted to provide financial advice.

ASIC has warned these influencers – known as “finfluencers” - that they could face imprisonment and fines of $1 million if they do not obtain a financial services licence or stop promoting securities and investments online.

ACCC Proceedings

But what if these finfluencers’ personas are being used without their permission? In a world first, consumer watchdog the Australian Competition and Consumer Commission (ACCC) has commenced proceedings against Facebook owner Meta for serving up to Facebook users scam cryptocurrency advertisements featuring the images of prominent personalities (including business leaders and politicians), without the permission of the personalities involved.

The ACCC alleges that:

• While Facebook had no involvement in creating these ads itself, by the act of publishing them (after going through an approval process) and failing to remove them (after complaints raised by the personalities themselves) Facebook breached both consumer law and the ASIC Act; and
• Facebook is making matters worse by using algorithms specifically designed to target users who are most likely to be taken in by scams.  

If this case is successful, it could set a precedent for the liability of digital platforms, which generate significant revenue from running third party advertisements.

Financial Advertising Code

Meanwhile, in New Zealand, a new Financial Advertising Code (Code) took effect last month for new ads (effective 1 March 2022) having updated the former (out of date) Code. It applies to all financial ads from 1 June 2022.

A lot of financial advertising is already highly regulated. However, the Code covers issues relating to social responsibility (such as decency and offensiveness) and safety, which are not addressed by other regulatory bodies. And while other relevant legislation can be used by the Financial Markets Authority (FMA) or the Commerce Commission to take action against wrongdoers, consumers can use the Code to complain about individual advertisements directly to the Advertising Standards Authority (ASA), which can then deal with those complaints within a much shorter timeframe.

Four key issues emerged from the updating of the Code:

1. The need to protect non-experts who have very limited knowledge about financial products and services, or who may be financially vulnerable – the Code requires that advertising content should not only be “truthful, balanced” and “not misleading” but also “easily understood”. Written text must be large, clear and present long enough to be easily read.  And spoken language must be clear and at a speed able to be understood by consumers.  No more “auctioneer-speed” terms and conditions!
2. How to define financial products and services – As the Code is intended primarily for consumers, it includes a very long (non-exhaustive) definition that provides a list of examples, including insurance products, BNPL (Buy Now Pay Later) products, share trading platforms, cryptocurrencies and binary options.  
3. What to do about short-form advertisements – The Code applies to all advertising of financial products and services placed in any media, and therefore includes digital short-form advertisements, such as digital banner advertisements and some social media advertisements, where there may be a lack of space to include the information required by law.  Each advertisement needs to comply with the Code, under which “all relevant and required information must be disclosed”.  
4. Consistency with the FMA guidance note “Advertising offers of financial products under the Financial Markets Conduct Act” – The Code was updated to ensure there were no inconsistencies between it and the relevant 2021 FMA guidance note.

It is clear that digital financial advertising and finfluencers are squarely in the sights of the ASA. The definition of advertising is very broad and specifically includes social media (including user-generated content), influencers, videos, apps and advergaming. There is an obvious link here to the continuing march of the crypto sector towards mainstream acceptance, as the sector is closely associated with these forms of advertising.

Most submissions on the draft Code questioned the inclusion of user-generated content and, specifically, the extent to which advertisers can be responsible for that content where it may be difficult for the advertiser to moderate or remove it.

The ASA was apparently unmoved, however, because the new Code specifies that:

Advertisers and their agents, including influencers or other content creators, have primary responsibility for ensuring user-generated comments, reviews, testimonials and endorsements comply with the Principles and Rules in this Code when they are part of the advertisement.

The question will likely be: when does user-generated content form "part of the advertisement"?

The Code principles can be found below.

This article has been co-authored by Caitlin Hadlee and Kyra Vince.

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Social media image credit: Pawel Czerwinski