More and more young people are interested in investing money. They get the answers to their questions about the best financial product, the highest return or the most interesting crypto assets on social networks, which have replaced the bank advisor at the counter. Finfluencers, i.e. influencers for financial products, have thus become a rapidly growing phenomenon. They explain financial topics to young consumers quickly and entertainingly. And fintechs hope that cooperations with finfluencers will further increase their visibility among the young target group.
Finfluencer are monitored closely by competitors and regulators
However, not all finfluencers always comply with the legal rules. That is why they are monitored closely by competitors and regulators. The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) recently sent an information letter to consumers warning them that “among the financial influencers (FinFluencers for short) who regularly and frequently post information and investment tips” there are “many self-proclaimed experts on the go” in addition to genuine experts.
The Dutch Financial Supervisory Authority (Autoriteit Financiële Markten – AFM) even conducted a study of 150 finfluencers and their postings recently and published the result: “There are only a few finfluencers who post neutrally and there is often a lack of transparency.” The AFM therefore felt it necessary to “remind finfluencers of the rules for online postings about investing”, according to the headline of the press release. Previously, the European Securities and Markets Authority (ESMA) had also published an opinion on investment recommendations on social media, which we reported on the Osborne Clarke FinTech blog back in late October 2021.
In addition to the observation by the authorities, the market of fintechs and finfluencers itself also keeps a close eye on the respective competitors and their activities. German competition law makes it possible to legally attack a competitor in the case of competition violations by means of a warning letter and, if necessary, by taking legal action and, for example, to claim injunctive relief, Section 8 of the Unfair Competition Act (Gesetz gegen den unlauteren Wettbewerb – UWG). Claims for damages can also be a legal consequence of UWG violations, Section 9 UWG.
Legal rules for finfluencer activities come from two directions
Being under such observance, it is particularly important to know the legal requirements and to comply with them. For finfluencers, they arise from two directions at once: on the one hand, from the general requirements for advertising under competition law, and on the other hand, from requirements under financial market law.
The general requirements result in particular from the Unfair Competition Act (Gesetz gegen den unlauteren Wettbewerb – UWG) and primarily concern the labelling obligation of advertising. If a finfluencer receives a service in return for a post or works with affiliate links, he or she must make this clear in accordance with Section 5a (6) UWG. In particular for the platform Instagram, the German Federal Supreme Court (Bundesgerichtshof – BGH) specified in more detail a few months ago in three decisions (BGH decisions of 9 September 2021 – file numbers I ZR 90/20, I ZR 125/20, I ZR 126/20) what must be labelled as advertising by influencers and what the labelling must look like. This applies to influencers who advertise classic consumer goods as well as to finfluencers and financial products. The top priority is sufficient transparency through labelling if a recommendation is based on a cooperation agreement.
Detailed requirements from the Market Abuse Regulation (“MarktmissbrauchsVO”)
In addition, there are the financial supervisory requirements for finfluencers. The European Securities and Markets Authority (ESMA) has emphasised in its opinion that investment recommendations in social media are subject to the provisions of the EU Market Abuse Regulation. The Market Abuse Regulation obliges in Art. 20 those who provide a so-called “investment recommendation” to ensure that the information is presented objectively and that interests or conflicts of interest are disclosed with regard to the financial instruments to which this information relates. According to ESMA, the term “investment recommendations” describes “information recommending or suggesting an investment strategy, explicitly or implicitly, concerning one or several financial instruments or the issuers, including any opinion as to the present or future value or price of such instruments, intended for distribution channels or for the public.” Even though this term is broadly defined, it remains to be examined on a case-by-case basis whether activities of finfluencers fulfil this. However, this is certainly conceivable, for example in the case of Instagram profiles on which someone recommends investments in certain shares or even crypto-tokens.
Even more specific requirements may result from the Delegated Regulation on the Market Abuse Regulation. This is directed at any person who “repeatedly proposes investment decisions in respect of financial instruments” and in doing so presents himself as having financial expertise or experience or puts forward his recommendation in such a way that other persons would reasonably believe he has financial expertise or experience. This could also be the case with finfluencers, so that the additional requirements pursuant to Art. 2 et seq. of the Delegated Regulation to the Market Abuse Regulation apply (disclosure of the identity of the persons making the recommendations, fulfilment of the requirements for the objective presentation of the recommendations, etc.).
Overall, the level of transparency already required under general advertising regulations is increased by the requirements of financial supervision law. In addition, there is – unlike under general advertising regulations – the risk of a fine. Pursuant to Section 120 (15) no. 23 of the German Securities Trading Act (Gesetz über den Wertpapierhandel – WpHG), it is an administrative offence not to ensure, or not to ensure in the prescribed manner, that information is presented objectively or that interests or conflicts of interest are disclosed, contrary to the provisions of the Market Abuse Regulation.
Violations of the Market Abuse Regulation (MarktmissbrauchsVO), the Delegated Regulation on the Market Abuse Regulation (Delegierte Verordnung zur MarktmissbrauchsVO) or information obligations under the WpHG can also be challenged by competitors. According to Section 3a UWG, it is unfair and therefore anti-competitive “to act contrary to a statutory provision which is also intended to regulate market conduct in the interest of market participants”. The background to this is that those who, unlike their competitors, disregard the regulatory requirements gain an “advantage in competition by breaking the law”, which is considered unfair. The obligation of the addressees formulated in Art. 20 of the Market Abuse Regulation to ensure that information is presented objectively and that any interests and conflicts of interest are disclosed directly affects their conduct on the market, so that the provision is likely to constitute a market conduct rule within the meaning of Section 3a UWG. The same applies to the Delegated Regulation, whose explicit regulatory objectives, according to its recital (1), include above all “high standards of fairness, probity and transparency in the market “, i.e. also the conduct of its addressees on the market. And also for various provisions of the WpHG, such as its Section 64, the character as a competition-relevant market conduct rule is recognised.
Why the finfluencer rules are also relevant for fintechs
Compliance with the rules described is not the sole task and problem of the finfluencer. According to the case law of the Federal Court of Justice (BGH), companies that cooperate with influencers (whereby even a partnership through affiliate links can be sufficient) can also be held liable for their competition violations pursuant to Section 8 (2) UWG and can be sued for injunctive relief. This case law can be transferred to the case group of finfluencers, which also and especially applies to any violations of the aforementioned market conduct rules pursuant to Section 3a UWG.
It is therefore advisable for fintechs to contractually agree with finfluencers which requirements the finfluencer must comply with (for example: the finfluencer’s duty of disclosure to BaFin pursuant to Section 86 (1) sentence 1 of the German Securities Trading Act (WpHG) prior to the start of the activity, i.e. the issuance of an investment recommendation), how contributions within the scope of a cooperation are to be labelled in order to be compliant with the Unfair Competition Act (UWG) and the Market Abuse Regulation (MarktmissbrauchsVO), and which reaction and sanction options the fintech reserves for itself in the event of violations by the finfluencer. It is advisable to train the finfluencer in advance, to monitor their advertising statements and to request immediate correction in the event of possible violations. In this way, attacks by competitors or measures by supervisory authorities can be prevented.