How do you determine if the ‘influencer’ on duty is issuing a recommendation or not?
Young people constitute a tremendously appetizing market for content creators on social networks. An audience that spends many hours a day looking at YouTube, TikTok or Instagram, to name a few of the most used by this segment of the population. And to which it is very easy to reach to transmit all kinds of messages. Also, and this is an upward trend, those of an economic nature.
More and more influencers are using these communication platforms as channels of economic dissemination through videos that bring this world closer to young boys and girls in a visually very attractive way and with accessible language.
The problem appears many times when these influencers take advantage of these channels to issue investment recommendations. The National Securities and Markets Commission (CNMV) has once again focused on these people.
After carrying out “a review on social networks” of influencers in the financial sector, the supervisory body has observed that some of them could be recommending investments “without complying with the requirements established by the European Union (EU) regime.
And in particular, it indicates in a press release, it will contact the people initially identified by the CNMV “as ‘experts’ to request clarification about their activity.”
The supervisory body clarifies that the activity of preparing and disseminating these recommendations is regulated by two regulations: EU Regulation 594/2014 on market abuse and Delegated Regulation (EU) 2016/958 that develops it.
“Clear, exact and objective” recommendations
The main objectives of these regulations are that the investment recommendations “are presented in a clear, exact and objective manner, and that the interests and conflicts of interest of the person issuing the recommendation be reported” on the financial instruments to which they are applied. refer. In the case of those who present themselves as experts, “the regulations contemplate that additional requirements must be followed.”
The CNMV explains that an investment recommendation consists of “information in which an investment strategy is recommended or suggested, explicitly or implicitly, in relation to one or more financial instruments or with the issuers”. This includes “any opinion on the current or future value or price of these instruments, intended for distribution channels or the public.”
How do you determine if the ‘influencer’ on duty is issuing a recommendation or not? For this, it is necessary to analyze “the substance of what is communicated”. In other words, if an investment strategy is recommended -buy, hold or sell financial instruments- “regardless of the name given to the communication, its format or the medium through which it is disseminated (it may be electronically or verbal, for example).
Therefore, for information to constitute a recommendation “it does not need to be in writing or named as such”. Normally, the CNMV explains, these tips are issued by investment services companies or credit entities that are dedicated to it. The body supervises “on a regular basis” that these entities meet the requirements established by the regulations.
However, the recommendations “can also be made and disclosed by other people” – for example, the ‘influencers’ of social networks – which are subject to certain minimum requirements. When these people present themselves to the general public “as having experience or knowledge” about financial products and the markets, “or are perceived as such by market participants”, the regulation classifies them as “experts” who therefore must be subject to additional requirements.
“These experts -warns the CNMV-, may mistakenly think that the EU regime on investment recommendations does not apply to them because they transmit their communications through social networks or verbally”.
The warning from the European authorities
In this regard, the European Securities and Markets Authority (ESMA) published last year a statement on investment recommendations in social networks in which it made clear what activity is subject to regulation and applicable standards.
In this context, the CNMV initiated “a review of the activities of people who could be issuing investment recommendations on social networks.” And very especially those of experts, taking into account the parameters defined in the Delegated Regulation “to guide the application of the legal definition of ‘expert'”. That is, the frequency of recommendations, the number of followers, or your professional history. Taking into account, in addition, “if the communications of these possible experts have been disseminated by third parties, such as the media.”