Key Components
On 18 July 2024, the Security Commission (“SC”) governing the advertising and promotion of capital market products and services updated its Guidance Note on Provision of Investment Advice (“Guidance Note”) to address the growing popularity of financial influencers, also known as finfluencers, promoting capital market products and services on social media.
Under Schedule 2 of the Capital Markets and Services Act 2007 (“CMSA”), a person is required to be licensed by the SC under Section 58 of the CMSA for providing investment advice when the activity fulfils any one of the following:
- carrying on a business of advising others concerning securities or derivatives; or
- as part of a business, issues or promulgates analyses or reports concerning securities or derivatives.
While the SC will take into account the overall circumstances in making the assessment, the SC has clarified that providing recommendations or opinions which are likely to induce a person to take any action or position (e.g. buy, sell or hold) regarding a particular class, sector, or instrument in relation to securities or derivatives, is likely to be considered as “advising others concerning securities or derivatives”.
Further, the SC is more likely to consider that a person is “carrying on a business” if the activity is undertaken in a structured manner with regularity such as (a) Pay-for-advice arrangements; (b) Offering a fee-based subscription to a channel including on social media which offers investment advice; or (c) Expectation of benefits or gratification, direct or indirectly, from the provision of investment advice.
Implications on Finfluencers
- Compliance Requirements: Those who provide investment advice as part of a structured and regular activity must obtain the necessary licensing from the SC. Although sharing of genuine user experience may not require a licence, any arrangement involving the expectation of benefits or gratification, such as affiliate marketing, is likely to be considered “carrying on a business” and will require a license. Simply adding a disclaimer to content stating that it is not investment advice does not, in itself, relieve one from the licence requirement.
- Risk of Non-Compliance: Finfluencers and influencer marketing or PR agencies must be aware that engaging in unlicensed regulated activities is a serious offence, punishable by a fine of up to RM10 million, imprisonment for up to ten years, or both. Ensuring compliance with licensing requirements is crucial to avoid these severe penalties.
- Continuous compliance: On the other hand, license holders should verify that the companies they promote are licensed or approved by the SC by using the SC’s Investment Checker. Additionally, they must verify that their posts, shares, or promotions comply with the SC’s Guidelines on Advertising for Capital Market Products and Related Services.
The updated Guidance Note from the SC is most relevant to Finfluencers on social media and highlights the importance of obtaining the appropriate license and adhering to SC’s requirement to avoid legal repercussions.
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This article was written by Low Rui Thong (Pupil in Chambers) from Donovan & Ho’s corporate practice.
Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysia start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds. Feel free to contact us if you have any queries.
