On 20 December 2021, the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) published a report with the results of an exploratory study into investor protection requirements relating to social media posts titled “The pitfalls of ‘finfluencing’” (the Report).
The Report is based on an exploratory study carried out by the AFM into approximately 150 financial influencers (or content creators) who are active in the Netherlands, commonly referred to as ‘finfluencers’. Finfluencers post messages about investing and investment opportunities on social media in relation to a wide range of financial products, e.g. shares, bonds, foreign exchange transactions, contracts for differences (CfDs) and cryptocurrencies. According to the AFM, the average finfluencer has around 11,000 followers.
The AFM’s study was prompted by the fact that this finfluencing is a relatively new and increasingly popular phenomenon, which according to the AFM is likely to affect the investment decisions made by mainly young and beginning investors. The AFM has also received numerous questions and complaints about finfluencers. The AFM has investigated what is happening on social media in this regard and whether there is a cause for concern.
The AFM has identified the following risks associated with how finfluencers operate:
- Providing investment advice without being licensed to do so: the AFM notes that finfluencers often use a disclaimer stating that they do not provide financial or investment advice. However, despite such disclaimer these parties in practice do provide investment advice, e.g. in Q&As on social media or as part of restricted courses and trainings. Finfluencers are not permitted to provide investment advice in the Netherlands without an investment firm licence from the AFM.
- Not taking adequate care in making investment recommendations: finfluencers are providing investment recommendations, but do not always comply with applicable duty of care requirements when doing so.
- Recommending risky products: the AFM notes that finfluencers sometimes post on risky products such as CfDs, cryptocurrencies and foreign exchange transactions. The AFM has issued several warnings on the risks of these products and certain products, e.g. turbos and CfDs, are subject to trading restrictions.
- Working together with unlicensed firms: according to the AFM, various finfluencers recommend products from firms who are not authorised to operate in the Netherlands. In some cases, finfluencers receive significant referral fees for bringing in new clients and therefore have a personal interest in referring followers to these firms. In most cases, the clients are not aware of this. The AFM considers references to such parties highly undesirable.
- Receiving referral fees for bringing in clients: the AFM notes that finfluencers recommend brokers or banks on social media. In its study, the AFM determined that some investment firms pay these finfluencers on the basis of the number of new clients brought in by the finfluencer. This violates the ban on inducements for investment firms that applies in the Netherlands.
The AFM has contacted finfluencers about the rules and regulations applicable to them and reminded them of their responsibility to take note of and ensure compliance. The AFM has also contacted investment firms in relation to certain referral fees offered to finfluencers. The AFM notes that it will take enforcement action if necessary.
In 2022, the AFM will carry out follow-up investigations into the activities of various finfluencers.