With the increasing popularity of social media as a source of financial information, FinFluencers are also increasingly coming under the scrutiny of regulators. Recent scandals involving financial institutions working with numerous high-reach FinFluencers have further fueled the debate about the importance of ethical and legal accountability of FinFluencers.
From a European regulatory perspective, the European Securities and Markets Authority (“ESMA”), the EU’s securities markets regulator, issued in October 2021 a Public Statement on investment recommendations made on social media. In this statement, ESMA clarifies what investment recommendations are, how they can be posted on social media platforms, and the consequences of possible violations of the EU Market Abuse Regulation. Crucially, investment recommendations must be made in a specific and transparent manner so that investors can know and assess the credibility of the recommendation and its objectivity, as well as any interests of those making the recommendations, before making an investment decision.
EU regulators have also increasingly put crypto-assets on their radar. Such crypto-assets include virtual currencies as well as new types of crypto-assets and related products and services, e.g., non-fungible tokens (“NFTs”) or decentralized financial (“DeFi”) applications, which promise high and/or fast returns.
The EU Market Abuse Regulation is applicable to crypto-assets, if such assets are classified as financial instrument within the meaning of the Markets in Financial Instruments Directive (“MiFiD II “; Art. 4 Para. 1 No. 15 in conjunction with Annex I, Section C). Another requirement is that such crypto-assets are traded on a market within the meaning of Art. 2 Para. 1 EU Market Abuse Regulation.
Furthermore, in March 2022, the European Supervisory Authorities (EBA, ESMA and EIOPA – the “ESAs”) warned consumers that many crypto-assets are highly risky and speculative. Regulators noted that consumers should be alerted to the risks of misleading advertisements, including via social media and influencers. Also, the ESAs drew attention to the fact that - unless crypto-assets fall under MiFiD II as financial instruments (see above) - there is a lack of remedy or protection for the consumers for such investments.
Under Swiss financial market law, FinFluencers must pay close attention that their content on financial products and services as well as financial tips may trigger specific regulatory requirements. If FinFluencers promote financial products that qualify as financial instruments within the meaning of the Swiss Financial Services Act ("FinSA"), this may be considered (i) "advertising" or even (ii) "offering" within the meaning of the Act. Also, it must be evaluated whether the financial tips of FinFluencers may be considered as (iii) "investment advice" under FinSA. Accordingly, licensing obligations pursuant to FinSA and the Swiss Financial Institution Act (“FinIA”) may apply. In case of a cooperation with a bank, the (iv) advertising requirements under the Swiss Banking Act (“BA”) must be observed.
With reference to Art. 68 FinSA, advertising for financial instruments must be clearly recognizable as such; refer to the Key Information Document ("KID") and the prospectus for the respective financial instrument; and be consistent with the information contained in the KID and the prospectus.
If a financial instrument is offered to private clients, the producer of the financial instrument must draw up a KID in advance (Art. 58 FinSA). Producers are persons who produce a financial instrument or modify an existing financial instrument, including its risk and return profile or the costs associated with investing in the financial instrument (Art. 3 Let. i FinSA). The offeror of a financial instrument, on the other hand, has no obligation to prepare a KID. If the financial instrument is at the same time also qualified as a security according to Art. 3 Let. b FinSA and a public offer pursuant to Art. 3 Let. h FinSA is made, the obligation to draw up a prospectus must also be observed (Art. 35 FinSA).
Under FinSA, the investment advisor belongs to the category of client advisors. Client advisors are natural persons who come into contact with a client of a financial service provider and perform financial services (e.g., investment advice or managing assets) on behalf of a financial service provider or in their own capacity as financial service providers. Client advisors are subject to certain rules of conduct under FinSA (e.g., information/ disclosure duties, professional knowledge, entry in the register of advisors, affiliation with the ombudsman's office).
The advertising of financial instruments and financial services for a bank is governed by Art. 4quater BA. It stipulates that banks in Switzerland and abroad must refrain from misleading and intrusive advertising with their Swiss domicile or with Swiss institutions. In particular, advertising must not be misleading or intrusive with regard to bank client confidentiality, numbered accounts or the tax advantages of an account relationship in Switzerland.
In conclusion and in order to determine the legal prerequisites for both FinFluencers and collaborating financial institutions, a case-by-case analysis of their activities including roles is therefore necessary.