Crackdown on financial influencer marketing in South Africa

The Financial Sector Conduct Authority (FSCA) is set to crack the whip on social media influencers who give financial advice, potentially subjecting them to the same regulations as authorised financial advisors. 

This was revealed when the FSCA recently published the final version of its requirements for financial education (FE) initiatives.

These rules aim to ensure that FE is appropriate, objective, and free from the promotion of specific financial products. They address concerns that some institutions were disguising marketing as education. 

Several years ago, the influx of social media influencers, defined as individuals with a significant following on social media platforms, caught the eye of the FSCA.

They have been shown to wield significant influence over consumer behaviour through their social media content.

“This has inevitably led to the rise of finfluencers, referring to persons who post financial and investment-related content, and sometimes specifically promote financial products through social media,” the FSCA said in its 2024 Regulatory Actions report.

The FSCA said that in some instances, finfluencers have played a positive role in enhancing the financial literacy of the public and contributing to increased financial customer participation in financial markets.

“However, it raises concern if the public is influenced in their financial decisions by social media and the advice of celebrities, rather than by recommendations of authorised financial advisers,” said the FSCA.

“The FSCA has seen evidence of finfluencers conveying misinformation and perpetuating scams through social media [which] presents a clear risk to the public,” they added.

In 2024, the FSCA said that they would closely monitor the impact of finfluencers and, where required, take action to safeguard financial customers from potential harm.

The FSCA’s divisional executive of enforcement, Gerhard van Deventer, said that “the FSCA is considering the position of finfluencers and how they fit into our regulatory framework.”

“However, it should be noted that any person that provides financial advice with reference to a financial product as defined requires authorisation by the FSCA.”

“Providing such advice without authorisation is a contravention of the FAIS Act. Depending on the facts of each case, it may be that the activity of a finfluencer falls within the ambit of the prohibition,” he added.

Depending on the specific facts, the activities of a finfluencer could indeed fall under this prohibition, and the FSCA will investigate any complaint in this regard and will consider enforcement sanctions in appropriate cases.

Several financial advisors have noted that while the regulated financial sector faces increasing oversight, finfluencers seem to operate without repercussions despite potentially giving uninformed advice.

The FSCA is considering how finfluencers fit into their regulatory framework.

The crackdown is also aimed at protecting consumers from potentially bad advice. The FSCA will investigate complaints in this regard and consider enforcement sanctions where appropriate.

Welcomed development

Now in motion, many welcome the development. Head of Brenthurst Wealth Claremont Renee Eagar wrote that she is “not surprised”. “It was only a matter of time,” she said.

“As someone who works closely with individuals and families on their long-term financial planning, I see just how easily people are misled online,” Eagar said.

“The FSCA’s stance is a timely reminder: not all advice is good advice, and when it comes to your financial future, the risks are just too high.”

“Together with the help of AI, I have witnessed some scary scams of late, genius but fake impersonations that one can easily believe and be fooled by.”

She said there are several risks associated with taking financial advice from social media, including:

• Finfluencers are not the same as qualified financial planners and do not have to adhere to the same regulations or accountability measures.
• Social media platforms tend to promote the loudest voices rather than the most qualified or accurate information.
• Financial scams are rampant and becoming more sophisticated on social media platforms.
• Finfluencers might be paid to promote products or strategies without disclosing this, and their advice might not be in the consumer’s best interests.

“Let me be clear – I’m not saying you shouldn’t learn or explore online. In fact, I encourage it. The more you understand about your options, the more informed your decisions will be,” said Eager.

“But your final decision shouldn’t rest on what an influencer said in a 30-second reel. Talk to someone who is qualified. Someone who has a duty to act in your best interest. Someone who wants to help you succeed, not just go viral.”

This article was first published by Daily Investor and is reproduced with permission.