Providing Investment Advice: A Guide to the FinFluencers

 

The rise of FinFluencers (financial influencer) has revolutionised the way individuals access and interpret investment information. While this democratisation of finance empowers many, it also raises concerns about the potential risks associated with unregulated advice. Recognising this, the Securities Commission Malaysia (SC), has issued a revised Guidance Note on the Provision of Investment Advice (“Guidance Note”) which clarifies when providing investment advice constitutes a regulated activity under the Capital Markets and Services Act 2007 (CMSA), thus requiring licensing.

Licensing Requirements

With reference to the Guidance Note, a person is required to hold a license from the SC if they carry on a business of advising others concerning securities or derivatives. This includes issuing or promulgating analyses or reports concerning these financial instruments.

In determining whether a person is “carrying on a business of advising others concerning securities or derivatives”, the overall circumstances of the activity including the following factors will be assessed:

• Nature of Communication: Any communication that provides recommendations or opinions likely to induce actions (e.g., buying, selling, or holding securities or derivatives) is deemed investment advice. For example, “this stock is the next big thing!”.

• Business Model: The activity is considered a business if it is conducted in a structured and regular manner. For example, pay-for-advice arrangements, fee-based subscription services, or expectations of benefits from providing advice such as income generated by views on social media platform or referral rewards.

In this regard, any discussion pertaining to specific stocks on blogs, forums or social media, conducting trainings or seminars on general stock trading techniques for a fee or sharing financial insights would be regulated and a license is required. It must be emphasised that having a disclaimer stating that you are not providing an investment advice may not be sufficient to exempt you from obtaining a license.

Disclosure Requirements

Individuals invited to express their views on the stock market on radio, television or any other manner of communication must disclose to the audience whether they are licensed by the SC for providing the investment advice and any interests they may have in the securities or derivatives they discuss.  

Standard of Conduct for License Holder

A person licensed under the CMSA must adhere to certain standards so as not to cast doubt on their competency, sound judgment and integrity. For example, they must avoid making false or misleading representation that is likely to induce a person to invest in securities or derivatives.

Offences and Penalties

Unlicensed individuals engaging in regulated activities can face severe penalties under the securities laws. This includes fines up to RM 10 million, imprisonment for up to 10 years, or both. Other offences under the securities law include market manipulation, making false or misleading statements to induce securities transactions, and reckless misrepresentation.

Conclusion

The revised Guidance Note on the Provision of Investment Advice reflects the SC’s commitment to protecting investors and upholding market integrity. Ethical, responsible and professional advice is paramount. By prioritising compliance, FinFluencers can build trust and continue to empower their audience while fostering a healthy investment ecosystem. If you require further legal advice or compliance guidance regarding investment advice, feel free to contact us for assistance.