Finfluencers Face Scrutiny Amid Regulatory Concerns

Financial influencers, who are also known as finfluencers, have a solid presence in the retail market. However, these individuals are now facing scrutiny from regulators. There are concerns over the regulatory approach that should be used for finfluencers and whether they need to be licensed.

Finfluencers Have A Solid Presence In Retail

A survey that was conducted by the Australian financial regulator found that 28% of young investors follow at least one finfluencer on social media platforms. The Cyprus Securities and Exchange Commission (CySEC) also conducted its survey showing that at least 31% of retail investors use finfluencers to make investment decisions.

The influence that regulators carry on the retail trading market is significant. These investors support a wide range of financial instruments such as cryptocurrencies, equities, and forex. Moreover, a large number of these finfluencers have had a positive impact on the financial industry as they have increased financial literacy.

Some analysts believe that while financial influencers can sometimes be criticized, there are many examples of good financial advice that they have given. As such, it is upon the trader to differentiate between credible information and one that is not credible.

One of the positive financial pieces of advice that can be given by a finfluencer is the importance of personal finances. Moreover, a large number of young investors, including millennials and GenZ, have begun prioritizing their financial health and growing their financial knowledge, which can be attributed to finfluencers.

However, there is a significant portion of finfluencers that are promoting scams and even indulging in pump-and-dump schemes. Many have also recommended that investors prioritize risky projects that have since failed, such as FTX. While FTX was a popular legitimate crypto trading platform, it filed for bankruptcy in November last year, leaving many investors counting losses.

The majority of influencers also failed to perform due diligence on FTX and its internal operations. It raised concerns over the lack of in-depth research before these influencers recommend a service to their followers.

Regulators crack down on finfluencers

The growing popularity of finfluencers is attracting regulatory attention. The Australian financial market regulator was among the first to recognize the growing popularity of finfluencers. It issued a warning against them in 2021.

The ASIC has also said that the majority of influencers do not hold an AFS license and are not subject to regulatory requirements. The Australian regulator has also threatened the illegal influencers with possible jail time and penalties.