Finfluencers, a risk for small savers

In November 2021, Andrés Iniesta's bonhomie received a warning from the Spanish financial markets regulator. The former Barcelona player was already an Instagrammer with almost 40 million followers, and was recruited by the still-active crypto platform Binance to advertise on social media and recommend investments in the platform's cryptocurrency, the so-called Binance Coin, BNB. This was one of the first examples of the transformation ofinfluencers in finfluencers, moving from promoting insensitive products and services to promoting investment products and providing furtive financial advice, with obvious risks to followers' assets.

The pandemic saw an exponential growth in the dissemination of information (or misinformation) on investment (or speculation) on social media, led byinfluencers exercising, with impunity, the functions of financial advisors without the regulatory requirements to which these qualified professionals are subject. Investment recommendations have a degree of danger far above those of fashion, entertainment or travel, especially for Generation Y (thirty-somethings) and Generation Z (twenty-somethings), some with a certain economic capacity and all with high trust and use of social networks.

Some recent surveys place over 40% of members of Generation Z who begin investing via social media recommendations, the trusted communication channel for young people. Financial regulators focus the problem on three relevant concerns: the proliferation of financial advice issued by influencers, promotional activities of investment products without disclosure of costs and commissions of the finfluencers and the manipulation of market data to attract investors and influence prices.

The finfluencers They often receive high compensation to promote products and services, and the problem is primarily their failure to disclose this compensation, which then makes the promotion appear as "friendly" advice to followers. The platforms on which they operate. finfluencers They thus have an enormous field of action where their lack of sufficient knowledge and the biases in the data and arguments they provide without any type of supervision are exacerbated.

Investment is a world in which, even under full regulation, there is a very high information asymmetry. The lack of financial education of a large part of citizens places them in a position of weakness vis-à-vis the offer and, therefore, requires high doses of client protection regulations. In the jungle of the networks, protective regulations do not exist or are only just beginning to be implemented in some countries.

This defenselessness has already alerted many organizations and, recently, warnings are beginning to appear—but they are still ineffective—for the victims. Minor regulations that are too generic are applied, transposed to the finfluencers and there is a looming attempt at regulatory coordination at the international (IOSCO) or European level, with timid references in some recent EU texts.

For example, ESMA, the European Investment and Financial Markets Authority, published in February 2024 a non-mandatory recommendation to introduce requirements for individuals issuing recommendations on social media based on market abuse regulations that require transparency and the disclosure of conflicts of interest. In the absence of a comprehensive European regulatory framework, some Member States, including Spain, have begun to require accountability for financial communications issued on social media. Perhaps the most comprehensive document that can serve as a guide for a regulatory treatment of the risks of finfluencers It is found in a very recent IOSCO report published just a few days ago, entitled precisely Finfluencers, which is the culmination of an international survey of regulators and details in great detail the risks, activities involved, current regulations in force, and best practice initiatives to curb the problem.

Despite the magnitude of the problem—and the serious consequences it is generating—there are positive elements that could be taken advantage of by redirecting regulations. These are those that revolve around financial and investor education, which some finfluencers regulated and supervised could be provided. We are still far from it.