The
Financial Conduct Authority (FCA) is interviewing 20 financial influencers
under caution. According to the regulator, this action is part of its efforts
to crack down on finfluencers who may be promoting financial products
illegally.

In
addition, the FCA issued 38 alerts regarding social media accounts run by
finfluencers that could contain unlawful promotions.

Other
regulators, including FINRA and the SEC, have expressed concerns regarding the
impact of social media influencers on investor behaviour. BaFin has represented concerning figures as well, indicating apprehension about the potential risks associated
with their influence in the financial markets.

Finfluencers:
Trust and Responsibility

The
rise of scams targeting younger people is a growing concern. Research shows
that 62% of individuals aged 18 to 29 follow social media influencers, with 74%
of them trusting their advice. Nine out of ten young followers have changed
their financial behaviour based on this advice.

“Finfluencers are trusted by the people who follow them,
often young and potentially vulnerable people attracted to the lifestyle they
flaunt,” said Steve Smart, Joint Executive Director of Enforcement and Market
Oversight at the FCA.

“Finfluencers need to check the products they promote to
ensure they are not breaking the law and putting their followers’ livelihoods
and life savings at risk.”

More Studies Show Young Investors Trust Finfluencers

A recent BaFin
study highlights a growing trend among younger investors, particularly
those aged 18 to 45, who are increasingly turning to social media for financial
information, especially in cryptocurrencies. The survey of 1,000 investors
reveals that over half of Millennials and Gen Z view social media as a viable
alternative to traditional financial advice, as reported by Finance Magnates.

Users engaging with social media have diversified their
portfolios, with significant investments in securities and crypto assets.
Notably, 43% of social media users have invested in cryptocurrencies. Despite
their influence, many young investors remain unaware of finfluencers’ potential
compensation for financial recommendations.

A Barclays
study reveals that 51% of UK investors using social media for financial
guidance risk exposure by not verifying the credibility of finfluencers. The
survey of over 2,000 UK adults shows that nearly a quarter now seek investment
advice from social media, messaging apps, and online forums.

This trend is
especially notable among younger generations, with 37% of Gen Z respondents
relying on these channels for financial guidance.

A CMC
Markets report indicates that 33% of retail traders are likely to trade
based on opportunities highlighted by finfluencers. The report also reveals
that 59% of female traders are more inclined to follow influencer
recommendations compared to 53% of male traders, while those over 55 are less
influenced.

As regulators increase oversight of financial promotions, it
is important for finfluencers to be aware of the legal implications associated
with their content.

“Finfluencers need to be aware that the FCA’s perimeter is
broad and it is very easy to fall within its jurisdiction even without
intending to do so,” commented James Alleyne, Legal Director in the Financial
Services Regulatory team at Kingsley Napley LLP.

“Similarly, financial promotions are tightly regulated. Even
where individuals are acting in good faith and creating what is intended to be
purely educational content, it does not take much to inadvertently cross the
line into regulated business and, by doing so, become exposed to a possible
criminal investigation.”