Canadian Securities Regulators offer guidance on protecting investors from “finfluencers”

The recent release of Joint Staff Notice 31-369 by the Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization of Canada (CIRO) sheds light on the application of Canadian securities laws to the activities of social media financial influencers, commonly known as “finfluencers.”

The Staff Notice aims to address the growing concerns surrounding investor protection in the realm of finfluencer content, particularly when content blurs boundaries between education, promotion, and investment advice. It emphasizes that Canadian securities laws are principle-based, offering the flexibility to adapt to new and evolving methods of delivering investment-related content, regardless of the platform or technology utilized.

Securities laws can apply to finfluencer activities across various channels, including social media, videos, text messages, and traditional media. Whether content is generated by humans or computer-generated digital avatars, the same principles apply. Additionally, the use of artificial intelligence in producing or disseminating investment-related content falls under the purview of securities laws.

A crucial aspect of investor protection highlighted in the Staff Notice is the requirement for individuals involved in advising on or trading in securities to be registered, unless exempted. The definition of “advising” encompasses recommending or expressing opinions on investing in securities, including content that may encourage investments. On the other hand, providing general factual information without opinions or recommendations typically does not qualify as advising.

The definition of “trading” encompasses a broad range of activities beyond just executing trades, such as advertising, solicitation, or facilitating transactions. Registration is generally mandatory for advising or trading activities conducted for business purposes. The determination of whether registration is required depends on various factors, including the frequency of the activity, solicitation, resemblance to registrant conduct, and expectations of compensation. Disclaimers stating that content is not advice do not exempt individuals from registration requirements.

Securities laws offer limited exemptions from registration, with the general advice exemption being relevant to finfluencers. This exemption may apply where advice is not personalized to an individual’s circumstances but requires clear disclosure of any financial interests in discussed securities. It does not cover trading activity or activities related to trades. Individuals engaging in advising or trading for business purposes without qualifying for an exemption must register as advisers or dealers, meeting applicable requirements and compliance obligations.

Disclosure plays a critical role in ensuring transparency when finfluencers promote securities or rely on exemptions. It is imperative that any financial or other interests are clearly disclosed, along with the nature of compensation, the security involved, and parties involved in payments and benefits. Generic or buried disclosures are deemed insufficient, with regulators emphasizing the need for specific, prominent, and accessible disclosures to avoid misleading investors.

Even if finfluencers are not required to register as advisers, they remain accountable for adhering to regulatory obligations concerning misrepresentations, market manipulation, or deceptive conduct. CSA members retain the authority to intervene if conduct is deemed against the public interest, underscoring the importance of compliance with securities laws.

For registered firms and issuers engaging finfluencers, compliance with securities laws is paramount to mitigate risks related to referral arrangements, marketing, advertising, conflicts of interest, or regulatory oversight. Written agreements, training, oversight, and clear disclosure of compensation are essential measures to ensure that finfluencer content aligns with securities laws, avoiding misleading investors or distorting market activities.

In conclusion, the rise of finfluencers as a popular channel for sharing investment-related information has drawn increased regulatory attention. The guidelines provided in the Staff Notice aim to safeguard investor protection, uphold transparency, and uphold compliance with securities laws in the evolving landscape of financial influencer activities.