in a nutshell
Recent Federal Court Rulings Australian Securities and Investments Commission (ASIC) v Scholz (No 2) [2022] FCA 1542 has important implications for those discussing financial products and services on social media platforms. A court ruling issued on December 20, 2022 rules that social media ‘finfluencers’ may be deemed to be carrying on financial services business, thus obtaining an Australian Financial Services License (AFSL). It warns you that you should The full decision can be found here.
Another Australian Competition and Consumer Commission (ACCC) social media sweep was also released, identifying misleading testimonials and endorsements by social media influencers. This means increased scrutiny of influencers and increased likelihood of cross-referral of complaints by regulators, resulting in the initiation of further enforcement actions. You can read the ACCC announcement here.
- The ruling confirms that a person discussing financial products and services on social media may be considered to be in the financial services business. Corporations Act 2001 (action).
- S 766B of the law defines financial product advice as a recommendation or statement of opinion, or a report of any of these, intended to influence an individual or person in making a decision regarding a financial product. . Given the broad scope of this definition, it should come as no surprise that a “finfluencer” is only in the business of financial services and would be in violation of Section 911A of the Act without an AFSL.
- Anyone who discusses financial products or services on social media should stop immediately or ensure that they have a valid AFSL or related exemption to avoid violating corporate law.
- The ACCC also announced and launched its own research to identify misleading testimonials and endorsements by social media influencers. This means that there will be increased attention to this area and that ASIC may use the information to speed up the pace of investigations and enforcement actions.
court decision
Tyson Robert Scholz is a social media “finfluencer” who provides training courses on ASX trading and makes stock buying recommendations both in private online forums and on his Instagram using the handle “@ASXWOLF_TS” I was doing Scholz also had a blue 2017 Lamborghini Aventador S with the “ASX Bull” license plate.
Despite his low-profile presence, in December 2021 ASIC filed a lawsuit in federal court based on Mr. Scholz’s conduct of a financial services business in violation of Section 911A(1) of the Companies Act. woke up ASIC sought an order barring Mr Scholz from pursuing or carrying on a financial services business in Australia.
Legislation S 911A (1) requires everyone carrying on a financial services business in Australia to hold a valid AFSL.of ASIC v Scholz (No 2), a federal court ruled that finfluencer Schultz sold undisclosed “tips”, promoted various ASX-listed stocks, and sent attendees online through posts on Instagram and online forums. held seminars designed to teach people how to trade in . ASX.
In her decision, rendered on December 20, 2022, Downs J determined that Mr. Scholz was conducting a financial services business without an AFSL by providing advice on financial products. she said:
“…Mr. Scholz’ financial product advice has formed an integral part of this business. It was part of the business operations.”
As a result of these violations, Mr. Scholz was found to have violated corporate law. ASIC is seeking an order prohibiting Mr. Scholz from:
- Promote or conduct any business that provides recommendations or written opinions regarding the purchase of stock in exchange for cash or other benefits.
- carry on, directly or indirectly, any financial services business in Australia;
- Receiving, soliciting, transferring or disposing of funds received by him from clients as a result of his recommendation or opinion regarding the purchase of shares.
The matter is set for a January 31, 2023 litigation management hearing, at which the Court will consider the order sought by ASIC and an additional order barring Mr Scholz from conducting any further financial services business in Australia. .
implication
The federal court’s decision comes after a number of warnings against “finfluencers” operating financial services businesses without a valid AFSL. “Finfluencers” are individuals or social media pages that use their popularity on social media platforms to discuss financial products and recommend investment ideas with their followers. Given the growth of social media over the last decade and consumers increasingly relying on online platforms to inform their decisions, “finfluencers” influence the financial decisions of their followers. We are in a strong position. While this can be an important tool for financial literacy, ‘finfluencers’ can also put many young, amateur, or less sophisticated investors at risk. The services provided by “Finfluencers” can lead to serious consequences, especially if they provide unqualified or unauthorized advice.
ASIC Vice-Chairman Sarah Court said:
“ASIC warns those who discuss financial products and services on social media that they may be subject to enforcement action if they are in the business of providing financial services without a license.”
Financial services laws exist to protect investors if something goes wrong. By offering services under the AFSL, both the investor and her provider of financial services benefit from these protections.
ACCC Social Media Sweep
On January 27, 2023, the ACCC announced it had launched an investigation to identify misleading testimonials and endorsements by social media influencers. The ACCC also indicated it would consider her more than 150 submissions naming 100 of her influencers who received responses to her Facebook posts on the ACCC seeking information. Sweep targets sectors where influencer his marketing is particularly prevalent, such as parenting, gaming, and technology, but these presentations often include financial advice as well. The sweep targets social media platforms such as Instagram, TikTok, Snapchat, YouTube, Facebook and his live streaming service Twitch. To the extent financial services-related content is subject to submission to the ACCC, the information may be cross-referred to her ASIC by the ACCC for further investigation and consideration. Such inquiries allow ASIC to target conduct that it may not otherwise have been aware of, or to advance existing investigations more quickly.
As a result of recent decisions, ASIC v Scholz (No 2)and the additional scrutiny resulting from the ACCC Sweep campaign in the short term, it is important for anyone providing financial or financial advice services online to ensure that:
- I have AFSL.
- Approved under at least one.
- AFSL exemptions can be effectively relied upon.
We also recommend that you periodically review these requirements and put in place appropriate processes to mitigate changes in risk coverage or reflect changes in activity. ASIC provides advice for social media influencers who discuss financial products and services online in Information Sheet 269, Discussing Financial Products and Services Online.
To discuss how our experience can help you, or if you have any questions about any of the above issues, do not hesitate to contact your usual Baker McKenzie contacts or the attorneys listed in this alert. please do not.
