6 August, 2024

‘Finfluencers’ and the need for regulation

Nondisclosure can be risky in financial services, where such endorsements might constitute unqualified financial advice.

Written by Liska Kloppers, Head of Client Strategy at DataEQ.

There is a rising global trend of brands employing influential individuals on digital platforms to endorse products and services. While this is a practice as old as advertising itself, traditional celebrity endorsements are transparently paid promotions, while “influencer marketing” posts often masquerade as authentic personal referrals.

For instance, if consumers see Victoria Beckham on a billboard with a Land Rover, it’s widely understood that she’s being paid for the endorsement and may not necessarily own a Land Rover, let alone understand the car’s mechanics. A social post endorsing a product by a fitness influencer that regularly documents their day-to-day life, on the other hand, comes across as an organic referral and gives the impression that this person is familiar with the product being promoted.

In response, regulatory bodies such as SA’s Advertising Regulatory Board (ARB) have introduced social media codes of conduct. Issued in May 2019, the ARB’s Social Media Code “serves to provide a clear set of rules around social media marketing to ensure the protection of consumers and the promotion of ethical conduct by brand marketers and their representatives across all social media platforms and activities”.

In this code, as in others like it, the ARB stipulates that paid promotional posts must be disclosed clearly with an identifier such as #Ad. Yet compliance leaves much to be desired, with the result that influencers are putting themselves and the brands they represent at risk.

In fact, most paid posts from influential authors do not adhere to these standards. For example, France’s directorate-general for competition policy, consumer affairs and fraud control found that 60% of influencers were not compliant. Similarly, when looking at the SA banking industry, DataEQ found that only about 3% of potential influential authors of posts on social media disclosed that they were being paid by banks they were promoting.

A major challenge for the regulator and consumers is discerning which posts are paid for. With a surge in individuals aspiring to “influencer status”, many are attempting to attract brand attention with unpaid promotions in the hopes of one day becoming a paid influencer. In this case, the brands are typically wholly unaware of the author’s activity.

It then becomes important for brands to monitor the posts of the influencers they have contracted to ensure their paid influencer status is disclosed. This proactive approach helps maintain transparency and trust between brands and consumers, safeguarding both parties from potential backlash.

Non-disclosure can be risky, especially in financial services where such endorsements might constitute unqualified financial advice. In SA, the Financial Sector Conduct Authority is aware of these issues, as was highlighted by the head of enforcement, Gerhard van Deventer, at the Finance Magnates Africa Summit.

Globally, regulators are stepping up and taking action. In 2022 there was a call for the UK’s Competition and Markets Authority to put measures in place concerning influencers who failed to disclose the paid nature of their posts. Earlier in 2024, the UK’s Financial Conduct Authority (FCA) issued guidelines along with a warning to “finfluencers” that failure to comply could result in fines or a two-year prison sentence. And the UK’s Advertising Standards Authority has even taken to blacklisting influencers who fail to comply with the FCA’s regulations.

This situation is fraught with risks for influencers too, particularly when they promote products they are unfamiliar with and either intentionally or unintentionally mislead consumers and display unethical behaviour. The FCA took action in May, when several influencers were charged for promoting unlicensed financial products, illustrating the severe consequences of noncompliance.

As influencers come under increasing scrutiny they need to be acutely aware that their actions could have serious consequences. For aspiring influencers looking for the attention of brands to become paid promoters, this should serve as a stern warning. The landscape is changing. Adherence to regulations is not just a legal obligation but a necessity to maintain credibility and avoid severe penalties.

In addition to regulating finfluencer activity, consumers need to be made aware of the risk of accepting financial advice from social media posts. While social media has become an important platform for consumers to share both the positive and negative experiences with brands, it can be dangerous to take financial advice from unknown or unlicensed individuals.

Educating the public on these risks is crucial to ensure they make informed decisions and avoid potential pitfalls associated with unverified financial advice.

This article was originally featured on Business Day Live.