The world and its global economy are chiming with wild variety, and with that comes a miscellany of rules and regulations reflective of the jurisdiction one is trying to govern. What works for A doesn’t necessarily work for B, and as you can imagine, these systems are further fragmented as we engender a new digital economy in the age of social media.
Fractionalization and a greater willingness to share intellectual property have created a vortex where a variety of demographics cannot only access financial information with ease but unknowingly act on the wave of misinformation constantly flowing through the system.
Social platforms have presented a crowd-sourced opportunity to share and spread financial advice with billions of global users consuming content under the hashtags #fintok, #stocktok, and the slightly less creative #personalfinance. However, this upward trajectory of financially-based user-generated content (UGC) is not a harbinger of healthy market activity.
In 2021, a May report from the US Federal Reserve determined that social media has driven risk appetites in equity markets. From GameStop to Tesla, we’ve seen the impact that social threads and influential tweets have had on stocks, shorted or otherwise. Social sentiment such as fear of missing out (FOMO) and human herd behavior has even been monitored and capitalized on to drive markets into a bull run.
And while these hype cycles are proving a concern in all corners of the world, the strategy to regulate and manage them appears to be both inconsistent and ambiguous. Society should not need to petition for greater clarity on these matters as they pertain to each jurisdiction. The outlining of an industry standard by way of clear and distinct communications should be a concerted focus for regulators, particularly as both the issues in the financial influencer industry and the vague communications put forward to date are continuously highlighted.
Former Securities and Exchange Commission (SEC) Chair, Jay Clayton highlighted last year that, while this may be the case, they could not “regulate Euphoria” and that they must, “generally respect the ability of people to share their opinions.”
In stark contrast to the US, a new information sheet released by the Australian Securities and Investments Commission (Asic) has warned that financial influencers or ‘finfluencers’ would need a license to deploy financial advice or face up to five years imprisonment upon breaking this law. Two jurisdictions. Two incredibly different approaches.
As the impact of finfluencers on equity markets, both positive and negative, remains undeniably palpable, we are yet to see regulators shine a light on the foundation of these issues — the social platforms and access points on which this financial advice is dispensed and disseminated. Without addressing the communications tools in the finfluencer’s arsenal, we are merely pushing the narrative that it’s more practical to keep hosing down fires than it is to prevent them.
While commissions have long regulated those with asymmetric knowledge of certain stocks, they disregard the gravity the platforms themselves play as a driving force of risk in equity markets. A greater onus must be bestowed on platforms that do not penalize the profiles of those actively spreading misinformation, knowingly participating in ‘pump and dump’ schemes, and targeting financially vulnerable cohorts of retail traders.
As we usher in Web3 and look to decentralize the centralized, a mass migration into digital assets and capital markets as an alternative revenue stream is imminent. While it is difficult to impose a blanket solution to the regulatory challenges that this paradigm shift presents, it is necessary that regulators look at retail trading holistically.
As part of their fight to protect consumers from financial duress, regulators should hone in on the dissemination of this advice by looking acutely at social and trading platforms under the magnifying glass just as much as the finfluencers themselves.
From beginning to end, policymakers must address how these traders are getting to deploy capital, on what platforms these transactions are at play, and how they are hearing about opportunities initially. Doing so will increase trust in online financial advice and those supplying it, and may also help address market volatility by way of educating the masses on credible investment opportunities.
Given its pseudonymous nature, crypto as an asset class imposes even more pressure on these willing finfluencers as there are far fewer places to point the finger when trouble arises. Perhaps there should be prerequisites outlined by the given platform to ensure more visibility in financial marketing campaigns. Ongoing vague and obscure discussions from policymakers on regulating social media’s finfluencers are only further obstructing the path to a reservoir of digestible financial advice for the world’s most marginalized communities.
Can you imagine the possibilities of free, effectively regulated, clearly communicated, and openly traceable financial advice frameworks on social media? I know Wall Street certainly can.