The Federal Court's recent decision in Australian Securities and Investments Commission (ASIC) v Scholz (No 2)  FCA 1542 has important implications for those who discuss financial products and services on social media platforms. Handed down on 20 December 2022, the Court's judgment heralds a warning that social media 'finfluencers' may be considered to be carrying on a financial service business and thus are required to have an Australian Financial Services Licence (AFSL). The full decision can be found here.
A separate Australian Competition & Consumer Commission (ACCC) social media sweep has now also been announced to identify misleading testimonials and endorsements by social media influencers. This means that there will be increasing scrutiny on influencers and the potential for cross-referral of complaints by the regulators resulting in further enforcement actions being commenced. The ACCC announcement can be found here.
- This judgment confirms that a person discussing financial products and services on social media may be considered to be carrying on a 'financial services business' under the Corporations Act 2001 (the Act).
- S 766B of the Act defines financial product advice as a recommendation or a statement of opinion, or a report of either of those things, that is intended to influence a person or persons in making a decision about a financial product. Given the wide scope of this definition, it is hardly surprising that 'Finfluencers' might just be carrying on a financial services business and that without an AFSL they will be in contravention of s 911A of the Act.
- Those discussing financial products and services on social media, should either cease immediately or ensure they hold a valid AFSL or a relevant exemption to avoid contravening the Corporations Act.
- The ACCC has also announced and commenced its own sweep to identify misleading testimonials and endorsements by social medial influencers meaning that there will be increasing attention in this area and the potential for ASIC to leverage information increasing the pace of investigations and enforcement actions.
In more detail
The Court's decision
Tyson Robert Scholz was a social media 'Finfluencer' who delivered training courses about ASX trading and made recommendations about share purchases both on private online forums and through his Instagram with the handle '@ASXWOLF_TS'. Mr Scholz also had a blue 2017 Lamborghini Aventador S with the number plate "ASX Bull".
Despite his inconspicuous presence, in December 2021 ASIC filed proceedings in the Federal Court on the basis that Mr Scholz was carrying on a financial services business in contravention of s 911A(1) of the Corporations Act. ASIC sought orders restraining Mr Scholz from promoting or carrying on a financial services business in Australia.
S 911A (1) of the Act requires any person carrying on a financial services business in Australia to hold a valid AFSL. In ASIC v Scholz (No 2), the Federal Court considered whether Finfluencer' Mr Schulz had contravened the Act through posts on Instagram and online forums in which he sold private 'tips', promoted various ASX-listed shares, and ran seminars designed to teach attendees about how to trade on the ASX.
In his decision handed down on 20 December 2022, Downes J held that Mr Scholz was carrying on a financial services business without an AFSL by providing financial product advice. He stated, "…the financial product advice given by Mr Scholz formed an integral part of this business. The advice which was given by him was not a one off but formed part of the continuous and systemic business operations by which Mr Scholz derived profit."
As a result of these contraventions, Mr Scholz was found to have breached the Corporations Act. ASIC is seeking orders prohibiting Mr Scholz from:
- Promoting or carrying on the business of providing recommendations or statements of opinion about the purchase of shares, in return for cash or other benefits.
- Carrying on a financial services business in Australia, whether directly or indirectly.
- Receiving, soliciting, transferring or disposing of the funds he has received from customers as a result of his recommendations or opinions about the purchase of shares.
The matter has been listed for a case management hearing on 31 January 2023 in which the Court will consider the orders sought by ASIC and an additional order prohibiting Mr Scholz from carrying on further financial service businesses in Australia.
The Federal Court's decision comes in the wake of a number of warnings against 'Finfluencers' for carrying on a financial services business without a valid AFSL. 'Finfluencers' are individuals or social media pages who use their popularity on social media platforms to discuss financial products with their followers and recommend investment ideas. Given the growth of social media in the past decade and with consumers increasingly resorting to online platforms to inform their decisions, 'Finfluencers' are in a powerful position to influence the financial decisions of their followers. While this can be an important medium for financial literacy, 'Finfluencers' may also be putting many young, amateur or less sophisticated investors at risk. Particularly when providing unqualified or unauthorised advice, the services provided by 'Finfluencers' can lead to grave consequences.
As ASIC Deputy Chair Sarah Court said:
"ASIC has warned those who discuss financial products and services on social media that they could be the subject of enforcement action if they are carrying on a business of providing financial services without a licence."
Financial services laws exist to protect investors if anything goes wrong. By providing services under an AFSL, both investors and financial service providers have the benefit of these protections.
ACCC social media sweep
On 27 January 2023, the ACCC announced that it had commenced a sweep to identify misleading testimonials and endorsements by social media influencers. The ACCC has also indicated that it will review more than 150 tip offs naming 100 influencers received in response to the ACCC's Facebook post asking for information. Whilst the sweep is targeting sectors where influencer marketing is particularly widespread including, parenting, gaming and technology, financial advice can often also be found bundled into these presentations. The sweep will encompass social media platforms including Instagram, TikTok, Snapchat, YouTube, Facebook and livestreaming service, Twitch.. The sweep will be run over several weeks and reflects a part of the ACCC's compliance and enforcement priorities for 2022/23. To the extent that any financial services related content is the subject of a tip off to the ACCC, there is the potential for the ACCC to cross refer the information to ASIC for further investigation and consideration. Such a referral may enable ASIC to target conduct of which it may not have otherwise already been aware or alternatively, to move forward more quickly in an existing investigation.
As a result of the recent decision in ASIC v Scholz (No 2), and the additional scrutiny that will arise in the short term from the ACCC sweep campaign, it is important for those providing financial services or financial advice services online to ensure they:
- Have an AFSL.
- Are at least authorised under one.
- Are validly able to rely upon an exemption from requiring an AFSL.
We also recommend that an appropriate process be put in place to review these requirements on a regular basis to help mitigate against any changing risk scope or reflect any change in activities. ASIC has provided advice for social media influencers who discuss financial products and services online at Information Sheet 269 Discussing financial products and services online.