What could the future look like for finfluencers?

With finfluencer Tyson Scholz receiving a permanent ban from the Federal Court, what has the Australian Securities and Investments Commission (ASIC) stated about finfluencers?

Scholz was found by the Federal Court to have contravened the Corporations Act in December 2022 and received a permanent injunction last week. 

He delivered training courses and seminars to paid subscribers about trading in ASX securities. His services included: 

• Subscription/membership fees of $500, $1,000 or $1,500;
• Offered various levels of training courses, referred to as ‘Stage 1’, ‘Stage 2’ and ‘Stage 3’;
• Offered individual one-off share suggestions or ‘tips’ for a fee; and
• Offered access to a private chat site, named ‘Black Wolf Pit’, using online communications platform Discord.

In ASIC’s statement, deputy commissioner Sarah Court said: “ASIC sought permanent injunctions in this case because the people who paid Scholz to access private online forums where he made recommendations about shares, as well as those people who purchased shares based on these recommendations, did not have the benefit of these protections".

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Prior to this, Gabriel Govinda was charged with market manipulation last June in relation to online posts on trading forum HotCopper, using the name Fibonarchery, where he sought to pump up the share price, then dump them at a higher price. This was the first time ASIC had made a conviction related to social media activity. 

IOSCO findings
The news followed a report at the end of March 2023 from the International Organisation of Securities Commissions (IOSCO) Retail Market Conduct Task Force, calling for greater international collaboration to tackle finfluencing, among other topics. 

The task force, co-chaired by ASIC and the Central Bank of Ireland, covered the “impact of social media and finfluencer activity on retail decisions and behaviour, and the need to heighten regulators’ digital presence and strategies”. 

It noted inappropriate online marketing and finfluencer activity exacerbated retail conduct issues and vulnerabilities. They were also identified as a “driving force” behind crypto and tech-based scams.

“The proliferation of finfluencers and targeted social media financial advertisements has facilitated a paradigm where retail investors are constantly bombarded with financial product information under what may be viewed as a patina of expertise. Amidst such an environment, it is important for regulators to acknowledge how easy it is for consumers to be exposed to misleading and deceptive information online, especially from non-accredited sources.

“While healthy and robust discussions among investors can potentially boost market vibrancy, retail investors should be mindful of self-proclaimed investment gurus who give questionable investment advice, as well as unscrupulous individuals who may take advantage of the anonymity in social media channels to disseminate false or misleading information.”

It noted a study by the Dutch Authority for Financial Markets of 150 finfluencers, which found their activity did not always put their followers’ interests first, few posted neutrally, transparency was often lacking and some promoted risky products.

Next steps 
One step going  forward explored heightening regulators’ digital presence and online strategy to proactively and expeditiously address retail investor harm. 

This could be done by monitoring and assessing online marketing and distribution trends to interrupt harmful channels of marketing, such as detrimental finfluencer activity, it said, targeting fraudsters directly when misconduct occurred and issuing public alerts, warnings, and monitoring consumer sentiment.

Crucially, some IOSCO members felt any responsibility for online communication of affiliates, such as finfluencers, was generally the responsibility of the firm engaging them, unless there was no established nexus of monetary benefits between the firm and the finfluencer.

ASIC was particularly highlighted by the global regulators for its use of social media to target those involved in pump-and-dump schemes. ASIC set up accounts on Telegram to post warning messages and provide reminders around the illegality of providing false and misleading advice.

“The ‘pump-and-dump’ commentary ceased following this targeted messaging strategy and served as a cost-effective approach to address misconduct and reduce fraud. 

“ASIC also engages newer technology stakeholders, e.g., moderators of online forums to understand how they monitor posts and deal with poor conduct and internet search platforms to discuss their search structures such that investors are not being misled on the results that are provided for certain searches.”

In light of its findings, among IOSCO’s suggestions was a public register of finfluencers to enhance transparency. This would include:

• The relation of the finfluencer to the promoted financial product or service; 
• Any potential conflicts of interest with the promoted financial product or service; 
• The referral fees and remuneration structure earned by the finfluencer for promoting the financial product or service; and 
• The finfluencers’ qualifications and financial accreditations.