CySEC Issues a Guide on the Dangers of Social Media and the "Finfluencers"

The Cyprus Securities and Exchange Commission (CySEC) has recently issued a guide (Guide) warning about potential risks posed by financial promotion on social media. Financed focused influencers, also called, "finfluencers", are a fast-growing phenomenon on social media platforms. 

A financial influencer is a content creator who uses social media platforms and digital channels to influence the financial behaviour and investment decisions of their followers by posting content about money-related subjects. Many of those finfluencers have no professional financial advisory qualifications and many times fail to mention that they are on a paid promotional activity. Again, according to a CySEC survey conducted in 2022, nearly one in three (31%) investors had made investment decisions based on recommendations from finfluencers on social media.

Unfortunately, the lack of formal financial education and the rise of digital platforms has seen finfluencers fill a gap that has increased the risk of people making bad investment choices. In response to this, CySEC has introduced a new targeted investor protection campaign, aimed at enhancing investor protection in response to the growing impact of social media and finfluencers on financial markets. Through these efforts CySEC seeks to raise awareness and safeguard the investing public from potential risks associated with social media-driven investment advice.

Nevertheless, while some finfluencers may have a background in finance or investment, most of them do not, which raises concerns about the accuracy and reliability of the advice they provide. In addition, advice given by finfluencers usually lacks sufficient disclosures that would enable the investor to properly evaluate a product, according to the Guide. Also, unlike professional investment advisors, finfluencers' advice is not designed to meet the individual's financial situation and background. 

Furthermore, as CySEC observes, younger generations are more likely to turn to finfluencers for free investment advice, rather than attending long financial conferences or read long pages of books on finance. In addition, by creating content that is creative, engaging and simplified and which uses real-life examples that are relevant to young people, finfluencers offer an entry into the world of finance and money management, making investors feel a sense of belonging to a community. According to Statista’s Global Consumer Survey 2022, more than 80% of US generation Z (those born between the late 1990s and early 2000s) said they would invest in stocks and shares, compared to less than half of participants from the baby boomer generation (those born between the mid-1940s and early 1960s).

With the increasing popularity of social media as a source of financial information, finfluencers are coming under the scrutiny of regulators. The European Securities and Markets Authority (ESMA) recently warned influencers on the need to separate fact from opinion and the need to disclose any interests in the promoted products, otherwise the risk multi-million-euro fines. As regards CySEC, through guidance it published, warned firms on the new requirements as per the Market Abuse Regulation, which provides that any video or other type of public communication, including social media, in which a person gives advice or ideas, directly or indirectly, about buying or selling a financial instrument or on composing a portfolio of financial instruments may constitute an investment recommendation, and therefore risks market manipulation.

Finally, the Guide provides some practical advice on how a person can safeguard his or her investment. Among others, CySEC advises people:

• to only invest in assets where they fully understand the mechanism behind them and in which they trust,
• if something is too good to be true, it probably is,
• always validate financial information provided to them online against additional reliable sources,
• never provide a finfluencer or any friendly stranger online with their bank or income details.

It should also be mentioned that currently, CySEC is among the supervisory authorities using specialized monitoring tools that record posts in over 180 languages ​​in real time in order to track any misleading and aggressive marketing practices.

The full text of the Guide can be found here https://www.cysec.gov.cy/en-GB/Files/Fin-Ed-Hub/98000.aspx/ (in English).