FSCA to regulate social media financial influencers in South Africa

The Financial Sector Conduct Authority (FSCA) in South Africa has announced that it will closely monitor the activities of financial influencers (finfluencers) on social media platforms to protect investors, particularly young people who engage with this content.

Commencing from next year, the move comes as research by CFA Institute highlights the growing influence of finfluencers on Gen Z investors and FSCA's latest annual regulatory report, often lacking sufficient disclosures and regulatory compliance.

As the report partly read, "social media influencers have been shown to wield significant influence over consumer behaviour through social media content."

The FSCA's crackdown aims to address the challenges posed by finfluencers, who may inadvertently provide financial advice subject to regulatory scrutiny or violate applicable laws. In other words, the agency is working to take down the financial advice that potentially mislead consumers.

The regulator will work with social media platforms and investment companies to ensure finfluencers comply with disclosure requirements and provide appropriate disclaimers when promoting financial products or making investment recommendations.

Although, FSCA recognizes the positive impact of financial influencers in enhancing financial literacy and market participation, however, FSCA expressed concerns that the public is increasingly relying on social media content and celebrity advice for financial decisions, rather than on the guidance of authorized financial advisers.

"The public shouldn’t rely on social media and celebrity endorsements for financial decisions," the report warns.

TikTok, according to FSCA, has become hotbeds for promoting dubious high-yield investment schemes and copy trading platforms, often endorsed unwittingly by prominent figures like Victor Matfield, Lucas Radebe, and Herschelle Gibbs.

The agency also highlight how social media fraudsters exploit platforms like Telegram and WhatsApp, using fake testimonials and fabricated screenshots to lure victims with promises of unrealistic returns.

The FSCA's latest report also highlights other significant online threats, including deepfake scams, where AI-generated videos or audio of public figures are used to promote fraudulent schemes, and impersonation scams, where fraudsters pretend to be legitimate financial institutions or even the FSCA itself to solicit funds.

The regulator has improved its enforcement methods to adapt to these sophisticated threats, underscoring its commitment to safeguarding financial customers from harmful business practices and criminal activities.

As part of its mission, the FSCA also provides financial education to enhance market stability and protect consumers, stressing the need for financial decisions to be based on advice from authorized advisers rather than social media influencers.

Typical examples of successful regulation of financial influencers globally

Here are typical examples of how some countries have approached regulating financial influencers (finfluencers):

1. Regulatory Approaches

United State (US)

• The SEC has taken enforcement action against social media influencers for fraudulent activities, such as the case of Trevon James who was charged with fraud.
• The US has implemented restrictions on financial influencers through the Securities Act since 1940.

United Kingdom (UK)

• The Financial Conduct Authority (FCA) has regulated social media usage by finfluencers since 2014.
• The FCA focuses on ensuring transparency and disclosure of sponsored content and affiliate partnerships.

Singapore

• The Monetary Authority of Singapore (MAS) issued rules in 2014 to govern finfluencers, focusing on customer confidentiality, market behavior, and reputational concerns.

Malaysia

• The Securities and Investments Commission (MAS) released new rules in 2020 to regulate digital payment token intermediaries, which includes finfluencers.

Australia

• The Australian Securities and Investments Commission (ASIC) issued an awareness brochure in 2021 detailing the legal duties of financial influencers.
• ASIC has taken enforcement action against violators of these responsibilities.

2. Challenges in Regulating Finfluencers

1. Identifying who qualifies as a finfluencer, as there is no common definition
2. Differentiating between educational content and personalized financial advice
3. Enforcing transparency and disclosure requirements for sponsored content
4. Balancing regulation with free speech rights
5. Keeping up with rapidly evolving social media platforms and trends
6. Enforcing regulations on finfluencers operating outside of a regulator's jurisdiction

3. India's Approach

• India currently does not have explicit regulations for finfluencers, but the Advertising Standards Council of India (ASCI) has published guidelines.
• The Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI) are exploring restrictions to ensure finfluencers do not provide misleading information.

The search results indicate that while some countries have implemented regulations to address the risks posed by financial influencers, it remains a complex and evolving challenge for regulators globally. A balanced approach is needed to protect investors while also preserving free speech rights.