From Likes to Lawsuits: FINRA Flags Compliance Pitfalls in Influencer Marketing and Crypto Promotions
With social media influencers dominating the advertising space and crypto assets all the rage, it's no surprise that financial firms are exploring new ways to reach clients and promote products. However, the recent insights from FINRA’s Advertising Regulatory Conference highlight a cautionary tale for firms rushing to leverage these trendy marketing tactics: proceed with caution, and bring your compliance team along for the ride.
Influencer Marketing: Risky Business?
Thinking about partnering with an influencer to boost your brand’s visibility or attract new clients? You’re not alone—financial firms have been increasingly relying on influencers to connect with a broader audience. But according to FINRA’s Stephanie Gregory, Associate Director of the Complex Review Team, many firms are stumbling out of the gate. In a sweep that reviewed over 1,300 communications from 15 firms, 70% were found to be out of compliance, and more than half failed to disclose that their content was paid advertising.
This oversight isn’t just a minor slip-up—it’s a compliance landmine. Failing to properly disclose sponsorships can mislead audiences and may even run afoul of anti-fraud provisions under federal securities laws. Yet, it appears many firms are simply not prepared to handle the intricacies of influencer marketing.
“Over half, about 55%, of the content reviewed didn’t disclose that the ads were paid,” said Gregory. “These are fundamental issues, and they put firms at risk of severe regulatory consequences.”
Don’t Leave Your Influencer in the Dark
One of the most surprising revelations from the conference was just how many influencers were promoting complex financial products—cryptos, options trading, securities lending—without fully understanding the subjects themselves. “We saw TikTok videos on security lending and options communications. It’s really hard to do a 30-second options video and be compliant,” Gregory noted, illustrating how crucial it is for firms to train influencers before letting them loose on social media.
If influencers don’t understand what they’re promoting, they can unwittingly cross regulatory lines, leaving firms scrambling to contain the fallout. Gregory’s advice? Educate them. Firms should consider comprehensive training to ensure influencers understand not just what they’re pitching but also the boundaries of what they can and cannot say.
Vetting and Recordkeeping: Protecting Your Firm from Compliance Fallout
When hiring influencers, firms need to go beyond just looking at follower count and engagement rates. Due diligence is critical. Does the influencer have a track record of working with other regulated entities? Have they demonstrated an understanding of compliance obligations? Firms should also consider implementing additional controls for influencers with large followings, given the potential impact of their content on a wider audience.
Equally important is recordkeeping. FINRA stresses that firms must maintain detailed records of all communications with influencers. This includes everything from initial outreach and contract negotiations to draft reviews and final posts. Such documentation could be pivotal in demonstrating good-faith efforts to remain compliant if regulators come knocking.
Crypto, Leverage, and Other Complex Products: A Regulatory Minefield
Beyond influencer marketing, FINRA’s conference took aim at the promotion of high-risk products like cryptocurrencies, leveraged ETFs, and structured products with guarantees. While the market for these products is growing, so too are the compliance headaches that come with advertising them. The short-form nature of social media often doesn’t lend itself to the nuanced disclosures these products require.
“Terms like ‘buffer,’ ‘barrier,’ and ‘participation rate’ are not familiar to the average retail investor,” said Derek Ashworth, Assistant Director at FINRA. When those terms show up in communications without sufficient context or explanation, it can create confusion and lead to misleading representations.
Key Takeaways: Influencer Marketing Done Right
With regulators taking a closer look at influencer marketing, firms need to ensure they’re not just jumping on the latest social media trend without doing their homework. To stay on the right side of the law, firms should:
Vet and Train Influencers Thoroughly: Make sure influencers understand both the product and the regulatory constraints around promoting it. Regular training sessions and clear guidance on compliance requirements can go a long way.
Maintain Robust Documentation: Keep records of all interactions with influencers and document every step of the campaign process, including draft approvals and final posts.
Be Clear and Transparent: Ensure all paid relationships are disclosed in a clear and prominent manner. Transparency isn’t just a best practice—it’s a legal requirement.
Monitor and Review Content Continuously: Even after an influencer campaign goes live, continuous monitoring is essential to ensure that content remains compliant as market conditions and regulations evolve.
Conclusion: Embrace Innovation, But Mind the Compliance Gaps
Social media and digital innovation are transforming how financial firms engage with their audiences. Yet, as FINRA’s Advertising Regulatory Conference underscored, firms need to strike a delicate balance between innovation and compliance. A strategic, well-documented approach to influencer marketing can open up new opportunities while keeping regulatory risks in check.
With the SEC and FINRA stepping up their scrutiny of influencer campaigns and complex product advertising, firms must be prepared to defend their practices—or risk being the next headline in an enforcement action. As always, the best offense is a strong defense—so educate, vet, and document every step of the way.
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