Influencers who provide product recommendations via social media are engaging in a business model that has long become ubiquitous. Increasingly active in this space are so-called “Finfluencers”—social media influencers who share financial information and offer their followers advice, with varying degrees of expertise, on investments, savings strategies, or retirement planning.
The legal framework surrounding Finfluencer activities is also becoming more clearly defined. For example, a German Finfluencer may:
- be in an indirect competitive relationship with a Singapore-based cryptocurrency exchange operator;
- be subject to advertising regulations under the German Interstate Media Treaty (think of the Cathy Hummels case); and possibly soon
- face stricter advertising regulations, as advocated by the Federation of German Consumer Organisations.
Today, BaFin has published its revised guidance on investment advice and, in doing so, has specifically addressed whether Finfluencers are engaging in a regulated activity that requires authorisation.
Investment Advice Requires Authorisation
Investment advice is provided when personal recommendations are given to clients regarding transactions involving specific financial instruments, provided that these recommendations are based on an assessment of the investor’s personal circumstances or are presented as suitable for them. Furthermore, such recommendations must not be disseminated exclusively through information distribution channels or made available to the general public.
Such investment advice qualifies as a financial service under the German Banking Act (KWG) or as an investment service under the German Investment Firm Act (WpIG). As a result, investment advice may only be provided with the appropriate BaFin authorisation or under the umbrella of an institution as a so-called tied agent.
Finfluencers Typically Do Not Provide Personal Recommendations to Clients
BaFin has now confirmed that Finfluencers generally do not provide investment advice and are therefore not subject to authorisation requirements. The typical Finfluencer, who addresses their diverse and heterogeneous followers through social media posts or videos, does not meet the criteria for investment advice in several respects.
Due to the lack of direct interaction with their followers, there is no provision of personal recommendations to a client. Those who recommend specific financial instruments to all or many of their followers do not base their recommendations on an assessment of the investor’s personal circumstances and are unlikely to present the product as suitable for each individual follower. Additionally, finfluencers serve as a prime example of individuals who make recommendations exclusively through information distribution channels or to the public.
Caution: Advertising Only for Permitted Activities!
With this clarification, BaFin has provided guidance on whether Finfluencers require authorisation. However, it has also emphasised that Finfluencers promoting unauthorised or prohibited activities may still be subject to regulatory action. If a Finfluencer promotes products from companies that operate without the necessary authorisation (for banking, financial, or investment services), they may be considered involved in the unauthorised activity due to their advertising efforts and related market outreach. In such cases, BaFin has the authority to take action against the respective Finfluencer under Section 37 (1) sentence 3 KWG, which applies to entities involved in the initiation, conclusion, or execution of such transactions.
Outlook – No Full Clearance Yet
BaFin’s revised guidance does not provide Finfluencers with a full exemption from authorisation requirements. The question of whether and under what conditions Finfluencers engage in investment brokerage, which also requires authorisation, remains open. More details will follow in Part 2.
