In the digital age, financial influencers-commonly referred to as “finfluencers”- have gained significant traction. With various social media platforms such as Instagram, YouTube, and TikTok serving as popular hubs for personal finance content, many finfluencers have begun advising their followers on investment opportunities.
However, this emerging trend had raised concerns among regulators globally, leading to heightened scrutiny and legal guidance on how finfluencers should conduct their activities. Earlier this year, the Securities Commission (SC) issued the Guidance Note on the Provision of Investment Advice (Guidance Note), which highlights the need for those sharing financial advice to obtain the necessary licenses.
Malaysia’s New Regulatory Landscape
Under the Capital Markets and Services Act 2007 (CMSA, finfluencers who give structured advice, whether through direct consultation as part of their online content, must meet certain regulatory requirements. If they offer advice that could induce their followers to take specific actions- such as buying, selling or, or holding securities- without proper licensing, they risk facing legal penalties.
The Guidance Note makes it clear that finfluencers typically don’t need a license from the SC if they are merely sharing factual information about investment products to educate or engage with people.
A person is required to be licensed by the SC for providing investment advice under the Schedule 2 of the CMSA, a person is required to be licensed by the SC under Section 58 of the CMSA for providing investment advice when the activity fulfils any one of the following:
(a) carrying on a business of advising others concerning securities or derivatives; or
(b) as part of a business, issues or promulgates analyses or reports concerning securities or derivatives.
The SC has outlined several key scenarios that may require a finfluencer to hold a license:
1.Business Activity:
If an individual is regularly advising others on securities or derivatives as part of a structured business model, they are likely engaging in regulated activities. For instance, offering subscription-based financial advice through social media platforms or charging a fee for one-on-one consultations qualities as providing investment advice under the law.
2. Promoting for Financial Gains:
Finfluencer who promote investment platforms or financial products for direct or indirect rewards, such as referral fees or affiliate marketing, are considered to be engaging in regulated activities. Having a disclaimer the states that they are not providing investment advice does not relieve them from the requirement a holding a license. They may still be deemed to require a license if they are promoting specific stocks or funds or if a statement made amounts to a recommendation or inducement to take action.
3. Educational Content:
However, not all financial content requires licensing. If a finfluencer provides general educational material without making a specific investment recommendations, they may not need a license. For example, running a webinar on stock trading techniques without suggesting which stocks to buy may fall outside the scope of regulated activities.
Penalties For Non-Compliance
Finfluencers who do not adhere to the regulations
Outlines by the SC face severe penalties. The Guidance. Note clarifies that individuals conducting unlicensed financial advice may face fines up to RM 10 million or imprisonment for up to 10 years. Furthermore, the SC has made it clear that simply including a disclaimer such as “This is not financial advice.” .” is not sufficient to exempt individuals from these legal requirements. This serves as a stern reminder to finfluencers to ensure they fully comply with licensing laws before offering any form of investment guidance.
The Future Of Finflluencing
While the current guidelines provide clarity, the evolving nature of digital platforms means that finfluencers must stay updated on regulatory changes. For their part, investors is simple: transparency, compliance, and education are essential to navigating the complex world of financial advice in the digital age.
Conclusion
As the realm of financial advice expands into digital spaces and social media, it becomes essential for individuals to be aware of regulatory obligations under Malaysian law. The Guidance Note by the SC offers a clear framework for determining when advice becomes a regulated activity. Those engaging in activities that could be construed as investment advice should carefully assess whether they need a license, taking into account factors like regularity, compensation, and the nature of the advice given. Staying compliant with the law not only mitigates legal risks but also ensures trust and integrity in the evolving world of financial advisory services.
15 November 2024