Finfluencers in Singapore: Legal or Not?
It would not be a stretch to say that most users of social media would have, at some point, come across influencers who provide advice or make recommendations on particular investment products (e.g. to invest in a particular stock or cryptocurrency). However, not many may be aware of the risks of blindly following the advice provided by such influencers.
In an example close to home, investors were left stranded and without access to their monies after Vauld, a Singapore-based crypto firm, suspended all its transactions in 2022. Many questions were asked in the wake of the collapse of the firm, as investors were scrambling for answers as to how they could get back their investments. It was subsequently revealed that many of these investors were attracted to Vauld after several influencers hyped up the product, demonstrating the great amount of power in the hands of influencers, as well as the equally great amount of responsibility that they should carry.
This article will cover the following topics:
What is a “Finfluencer”?
An influencer is someone who leverages various media channels, including social media (e.g. Instagram, YouTube, TikTok), to engage with their audience, and who often has some degree of influence over their audience’s preferences and behaviour. Influencers typically have a huge following on the platforms that they use, and post content (e.g. photographs, videos, podcasts, articles) to interact with their followers.
The term “finfluencer” is a portmanteau of the words “financial” and “influencer”. Finfluencers are a subset of the broader category of influencers, and refer to social media influencers whose content primarily revolves around the providing of advice on financial topics such as stock market trading or even cryptocurrency investments, as well as promoting financial products through their respective channels.
With the great degree of influence that finfluencers yield over their followers’ preferences and behaviour, it is to be expected that their followers will rely on their financial advice and recommendations and act on those pieces of advice and recommendations. However, this comes with its own set of pitfalls, including:
- Not all finfluencers have adequate financial knowledge to provide sound financial advice and recommendations, even if they may appear to have a large following, and may sound knowledgeable. This could lead to the spread of misinformation and even fake news, and the reliance on such misinformation by their followers.
- Like other influencers, one source of finfluencers’ revenue may be sponsorship benefits (i.e. payments or other non-monetary compensation by companies (sponsors) to promote or endorse their products). In the case of finfluencers, such sponsors may pay or provide non-monetary compensation to finfluencers to exclusively promote or highly recommend their financial products. In such scenarios, finfluencers could have an ulterior motive or financial incentive to promote a particular financial product over other less risky or objectively better products, which could lead to their followers making sub-optimal financial decisions.
- Lastly, financial products are extremely complex by nature, and may not always be explainable in simple terms. Thus, in a bid to engage their followers with easily digestible information, finfluencers may sometimes oversimplify the nature of the financial product, without fully explaining and disclosing the full risks of investing in the financial product. This may again lead to their followers making sub-optimal financial decisions.
Are Finfluencers Legal in Singapore?
Posting content relating to financial topics on social media and other channels is not illegal in Singapore per se. However, finfluencers may find themselves on the wrong side of the law depending on the extent to which they are deemed to be providing financial advisory services when they are not licensed to do so, or if the “advice” they provide is regulated in Singapore.
In Singapore, the Financial Advisers Act (FAA) is the main piece of legislation governing the provision of financial advisory services and the regulation of entities engaging in financial advisory activities. Under the FAA, no person shall carry on a business in Singapore of providing any financial advisory service unless they are authorised to do so with a financial adviser’s licence, or they are an exempt financial adviser. Hence, whether finfluencers will be caught under the FAA depends primarily on three things:
- Whether the activity performed by the finfluencer amounts to providing a financial advisory service?
- Whether the finfluencer is carrying on a business in Singapore of providing a financial advisory service?
- Whether, if the answer to the first two questions is “yes”, the finfluencer is authorised to do so with a financial adviser’s licence or is an exempt financial adviser?
What is a financial advisory service?
Financial advisory services refer to all or any of the services specified in the Second Schedule of the FAA. This includes:
- Advising others, either directly or through publications or writings (in electronic form or otherwise), concerning any investment product (explained below). The exception to this is when such advice pertains to corporate finance (e.g. advice on compliance with or in respect of laws or regulatory requirements, advice on the take-over of a company or business etc.)
- Advising others by issuing or promulgating research analyses or research reports (in electronic form or otherwise), concerning any investment product.
- Arranging of any contract of insurance in respect of life policies, other than a contract of reinsurance.
Investment products are defined as:
- Capital markets products (e.g. Securities, units in a Collective Investment Scheme, exchange-traded derivatives contracts, over-the-counter derivatives, contracts, and spot foreign exchange contracts for the purposes of leveraged foreign exchange trading).
- Spot foreign exchange contracts other than for the purposes of leveraged foreign exchange trading;
- Life policies.
- Structured deposits.
- Any other product as may be prescribed.
Finfluencers are at risk of flouting these regulations, as it is possible that by putting out content relating to financial topics, finfluencers may stray into the realm of providing advice on or making recommendations of particular investment products, or disseminating research done on such investment products.
However, whether they are actually flouting the regulations depends on the investment products that finfluencers talk about. As the list of investment products is limited, and deals with more traditional investment products, finfluencers who provide advice and make recommendations on non-traditional products like cryptocurrencies or NFTs may not run afoul of the law.
What does it mean to carry on a business in Singapore of providing a financial advisory service?
To be considered to be carrying on a business in an activity, you would have to be conducting that activity regularly, continuously and in a systematic fashion. Hence, you will only be considered to be carrying on a business of providing financial advisory services if you are giving advice or making recommendations regularly, continuously and in a systematic fashion.
As an illustration, if you are a finfluencer with a YouTube channel and you post about financial topics, as well as give advice and make recommendations on financial products on a weekly podcast, you will likely be considered to be carrying on a business of providing financial advisory services as you are doing it regularly (i.e. weekly), continuously (i.e. for a sustained period of time) and systemically (i.e. on a podcast). On the other hand, if you are a fashion influencer for example, but you just happen to give advice or make recommendations about a financial product on a one-off basis, this is unlikely to amount to the carrying on of a business.
Do note that it is not a requirement for you to have received remuneration in exchange for providing the financial advisory service in order for you to be found to be carrying on a business of doing so. In other words, even if you are providing the financial advisory service for free, you can still be found to be carrying on a business of doing so.
Additionally, even if you are located outside of Singapore, if you engage in any activity which is intended or likely to induce the public in Singapore to use any financial advisory service provided by you, you will also be deemed to be carrying on a business of providing a financial advisory service in Singapore, which is prohibited if you do not have a licence to do so or are not an exempt financial adviser.
What are the exceptions to the general prohibition against carrying on a business of providing a financial advisory service?
As mentioned above, the only two exceptions are if you are authorised to carry on a business of providing a financial advisory service with a financial adviser’s licence, or if you are an exempt financial adviser.
In Singapore, only corporations, and not just any other businesses registered with any other form of legal structure, can obtain a financial adviser’s license from the Monetary Authority of Singapore (MAS), and you must meet certain requirements, including:
- Having a minimum paid-up capital of either $150,000 or $300,000;
- $150,000 if the business only gives advice or provides research analysis on investment products or if the business arranges contracts of insurance in respect of life policies; or
- $300,000 if the business gives advice or provides research analysis on only futures contracts, spot foreign exchange contracts, or OTC derivatives contracts, or in combination with other investment products;
- Having in force a professional indemnity insurance policy;
- Having a minimum 3-year proven track record in the financial advisory business. If the business does not have such a track record, then the CEO should own not less than 20% shareholding of the business, and the CEO and Executive Directors (EDs) should collectively own not less than 50% shareholding;
- Having adequate internal compliance systems and processes, to ensure compliance with the law, good practices and professional standards;
- The business, together with its officers, employees, representatives and shareholders, must satisfy the fit and proper criteria issued by the Monetary Authority of Singapore (MAS);
- If applicable, to have technology risk management tools; and
- If the business is a foreign company, it should be subject to proper supervision by recognised home regulatory authorities and possess the requisite track record.
Financial advisers can also be exempt from the requirement to hold a financial adviser’s licence if they are one of the following:
- A bank or merchant bank licensed under the Banking Act;
- A company or co-operative society licensed under the Insurance Act;
- A holder of a capital markets services licence under the Securities and Futures Act;
- A finance company that has been granted an exemption from section 25(2) of the Finance Companies Act to carry on a business of providing any financial advisory service; and
- An approved exchange, a recognised market operator, or an approved holding company, in respect of the provision of any financial advisory service that is solely incidental to its operations.
Alternatively, even if you do not come under one of the institutional exemptions stated above and are hence not an exempt financial adviser, you may still be able to be exempted from holding a financial adviser’s licence in respect of certain activities. These specific exemptions are:
- An approved headquarters company or Finance and Treasury Centre that carries on business involving the provision of approved financial advisory services;
- Financial advisers that provide financial advisory services to any of its related corporations or connected persons;
- Financial advisers that only give advice or provide research analysis:
- To not more than 30 accredited investors on any occasion;
- To an institutional investor;
- In respect of their business of fund management; or
- Concerning Over-the-Counter (OTC) derivatives contracts to an accredited or expert investor; and
- An approved global trading company that only gives advice or provides research analysis concerning OTC derivatives contracts.
Can Legal/Regulatory Action be Taken Against Finfluencers?
If finfluencers contravene the provisions of the FAA, regulatory action can be taken against them. However, even if they do not directly contravene the provisions of the FAA (e.g. they are not providing financial advisory services), they may still run afoul of other related prohibitions.
One such prohibition relates to the provision of digital payment token services to the public. In order to discourage the highly risky trading of digital payment tokens (i.e. cryptocurrencies) in Singapore, the MAS issued guidelines in 2022, stipulating that digital payment token service providers should not engage third parties, including finfluencers, to promote their digital payment token services to the general public in Singapore. If found to be doing so, regulatory action may be taken against such digital payment token service providers, and possibly even the finfluencers themselves.
Apart from regulatory actions, finfluencers may also find themselves the subject of civil claims in court for promoting and endorsing the wrong financial products. For example, in the wake of the collapse of the FTX cryptocurrency exchange, many investors whose investments were wiped clean banded together to start class action lawsuits in the US to seek compensations from the celebrities and influencers who endorsed the cryptocurrency exchange. In their complaint, the investors argued that the celebrities, in lending their credibility to the failed cryptocurrency exchange, were “responsible for the many billions of dollars in damages they caused.”
In other examples, the Binance cryptocurrency exchange, as well as the influencers who were paid to promote the exchange and solicit new customers, were sued in a similar class action lawsuit. The creator of the popular Bored Ape Yacht Club collection of NFTs, and the celebrity endorsers of the NFTs, were also sued by investors claiming that they had been duped to invest in the NFTs.
If such a situation were to occur in Singapore, it may be possible for investors to commence a civil claim against finfluencers, potentially on the basis of a negligence action. However, this may prove to be difficult, given that the investors would first have to prove that the finfluencers owed a duty of care to them, and that the finfluencers breached this duty of care. Ultimately, this is still an open question as such a case has yet to be brought before the Singapore courts.
In conclusion, depending on whether the activity performed by a finfluencer amounts to providing a financial advisory service, and whether the finfluencer is deemed to be carrying on a business in Singapore of providing a financial advisory service, finfluencers may find themselves on the wrong side of the law in Singapore.
On the flipside, consumers of content put out by the finfluencers should be more careful as to the advice provided and recommendations made by finfluencers. One should always exercise care and caution when coming across such finfluencers. Do your own research and due diligence, and ultimately seek financial advice from a licensed and professional adviser before committing to a particular investment product.
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