The Canadian Securities Administrators (CSA) and Canadian Investment Regulatory Organization (CIRO) released guidance on Thursday to help finfluencers and the firms they work with follow securities laws when posting investment information online.
Canadian finfluencers tend to reach massive audiences. While some of the country’s most-viewed financial personalities are designated advisors, many others lack professional financial training. Still, depending on what they do, finfluencers may be engaged in regulated securities activities regardless of training or registration.
“Social media is changing how Canadians learn about investing, and that brings new risks,” Andrew Kriegler, CIRO president and CEO, said in a release. “We want finfluencers to understand that compliance isn’t just about rules, it’s about protecting your reputation and your audience.”
Registration and the general advice exemption
If a finfluencer offers advice on trading in securities, they may be required to register with the securities regulators. According to the guidance, advice includes offering an opinion about the merits of investing in securities or recommending a security, which could include emojis or promotional language like “golden opportunity.”
Trading includes directly or indirectly advertising, soliciting or conducting the purchase or sales of securities. This includes finfluencers offering copy trading, where the finfluencer provides information about their trading so the audience can replicate those trades in a self-directed account.
In addition, “It is important to note that the registration requirement cannot be avoided by simply making a disclaimer asserting you are not providing advice or trading securities,” the guidance noted.
However, purely providing factual information like how markets work, investment basics and information on registered account contribution limits does not constitute “advice.”
Finfluencers can also use the “general advice” exemption if the advice isn’t tailored to the needs of the individual and they disclose all financial or other interests they have in a mentioned security. For example, if a finfluencer offered fee-based courses on stock buy and sell signals that will help maximize returns, that is considered general securities advice as it’s not personalized to an individual. But if the finfluencer starts responding to follower comments and private messages with advice specific to the individual’s situation, this will be considered personal advice.
Promotional activity
If a finfluencer receives any form of payment to advertise a registered dealer or registered advisor’s services, they may be entering into a referral arrangement, and therefore this would be subject to securities law.
Likewise, if finfluencers are paid to promote specific securities or undertake investor relation activities, regulators may deem them to be working on behalf of an issuer or registrant and subject to securities distribution laws.
Finfluencers must disclose their interest in the activities they promote. Disclosures must be prominent and made at a point where the audience will connect it to the advice or promotion, the regulators stressed. A general disclosure like, “I may have a financial interest in some of the securities that I mention,” is not sufficient. Disclosures at the end of a long piece of content or that require additional clicks are also insufficient, the guidance said.
Previous research by the Ontario Securities Commission (OSC) suggests conflict-of-interest disclosures on their own may not be very effective. Earlier this year, the regulator conducted an experiment and found that 38.1% of people who were exposed to a finfluencer post bought a promoted asset, compared to 8.3% of the control group.
A conflict-of-interest disclosure brought that number down to 28.5% — still much higher than the control group. “While our interventions were effective at reducing the persuasiveness of social media content, they do not eliminate the influence of social media messaging entirely,” the OSC report said.
Firms and issuers working with finfluencers
Registered firms making referral agreements with finfluencers may be held responsible for statements the finfluencer makes on their behalf. This could risk the firm’s reputation depending on what is said, so firms should consider whether they could be facilitating registerable activity by unregistered parties, the guidance warned.
Many investors who follow finfluencers are clients of order-execution-only dealers, which are prohibited from making recommendations to their clients. Such dealers should ensure that they don’t indirectly make recommendations or facilitate registerable activity by unregistered finfluencers, the regulators said.
Securities issuers that use finfluencers to create interest in buying their securities could be seen as engaging a third-party for promotion — a regulated activity. An issuer may be held responsible for statements made by a finfluencer on its behalf.
Content disseminated through social media or other channels should be consistent with the issuer’s continuous disclosure record, including documents filed on SEDAR+, according to the guidance.