Finfluencers and consumer protection
Published: 13 January 2022
Article written by consumer coordinator Jo Gjedrem. Published in Dagens Næringsliv on 19 August 2021.
Much attention is currently focused on influencers on social media, so-called finfluencers, who recommend high-risk investments, such as the purchase of cryptocurrency and growth stocks. Their target group is often young people who have taken an interest in investing. Many are quite rightly concerned that this could trigger consumers to invest in products with a risk that they do not understand, want or have the financial ability to handle. Several people have also questioned whether there is sufficient regulation of these influencers' activities and whether they are adequately followed up by Finanstilsynet.
If the influencers receive some kind of payment for their posts, it is considered to be marketing. The Norwegian Consumer Authority supervises compliance with the Marketing Control Act, which, among other things, prohibits misleading marketing and requires such sponsored posts to be clearly labelled as advertising.
Finanstilsynet supervises advisory services concerning investments in financial instruments. If advice regarding the purchase of e.g. shares and mutual funds is provided on a professional basis, there are rules stipulating that the product must be adapted to the target group and be in the customer's interests. In addition, an authorisation is required to provide such investment advice. The requirements also apply when advice is provided through social media.
Financial instruments are defined in the Securities Trading Act and include shares, bonds and mutual fund units. A number of investment objects for which purchase and sales advice is also given are not financial instruments, such as works of art or other assets. Cryptocurrency is not a financial instrument in itself. Recommendations on the purchase and sale of cryptocurrency are therefore not covered by the rules on advisory services in the Securities Trading Act and not subject to supervision by Finanstilsynet. Finanstilsynet has repeatedly warned against the risks of buying cryptocurrency, and there is a need for legal frameworks and investor protection if trading in cryptocurrency is to become a suitable type of investment for consumers. In September 2020, the European Commission presented a proposal for the regulation of markets in crypto-assets, communicating an expectation that a regulatory framework will be in place within four years. The proposal includes rules on market abuse and investor protection.
Statements by private individuals for which no payment is received constitutes much of the communication on social media. Opinions on investment strategies, market trends, cryptocurrency etc. are not subject to supervision, regardless of their professional standard. Just as in many other areas where statements on social media may have a negative impact, the response must be information, criticism and debate.
An important exception, however, is that the market abuse rules in the Securities Trading Act may apply in the event of market manipulation in social media through the dissemination of misleading information about shares and other financial instruments. Finanstilsynet supervises compliance with the market abuse rules.
Finanstilsynet is keeping a close watch on developments and may intervene if finfluencers violate the regulations it supervises. Nevertheless, it is important to remember not to listen to advice from persons who do not have the necessary expertise and experience and are not open about their commercial ties. Regardless of who gives advice, investments should not be made unless you understand the risks and characteristics of the product you are investing in. Even if you have this understanding, you should be able to withstand the losses that may arise.