EU rules must be updated to protect consumers in an increasingly digital financial services market. In their review of the Distance Marketing of Consumer Financial Services Directive (DMFSD), EU policymakers can introduce stronger rules to account for new risks to consumers, including social media finfluencers. Finance Watch commends the improvements proposed today by MEPs in IMCO but calls for more ambition from EU co-legislators in the next stage of the legislative process.
On 28 March, the European Parliament’s Committee on Internal Market and Consumer Protection (IMCO) voted on its position on the review of the Distance Marketing of Consumer Financial Services Directive (DMFSD). Finance Watch, the pan-European NGO advocating to make finance serve society, welcomes the inclusion of rules on social media influencers promoting financial products and services in the IMCO proposal. However, it finds the proposal does not go far enough to adequately protect consumers.
Many EU citizens have lost a substantial amount of money because of misleading influencer ads on social media promoting risky financial products, such as crypto. Influencer marketing in financial services has become widespread across Europe and according to research by the International Organisation of Securities Commissions (IOSCO), 43% of European firms plan to increase use of influencers as a marketing tool.
Given the big risks finfluencer advertising poses to consumers, Finance Watch calls on EU policymakers to go beyond non-binding rules and labelling during upcoming interinstitutional negotiations. Finance Watch firmly believes there is a need to ban influencer promotions for risky investment products such as crypto, as was proposed as an alternative compromise amendment during today’s IMCO vote and which, despite having not passed, did receive a large amount of support in the committee.
Peter Norwood, Senior Research & Advocacy Officer at Finance Watch said:
Finfluencers on social media have a lot of power today. Many EU citizens, especially young people, are swayed by their promotion of risky investment products promising high returns while being silent about their risks, and they’re losing a lot of money as a result. It’s critical that influencer advertising of risky investment products is banned.
Ahead of trilogue negotiations, Finance Watch urges co-legislators to look closely at steps taken by member states to better regulate finfluencer marketing of financial services. Belgium recently introduced new rules on advertising for virtual currencies which mandates that mass media campaigns (campaigns disseminated to more than 25,000 consumers) must be notified to the national competent authority (NCA) at least ten days in advance to enable the NCA to intervene, if necessary, before the campaign actually begins. Spain recently issued very similar rules to Belgium and France is currently considering going even further and banning completely all finfluencer promotions for risky retail investment products such as crypto. The French National Assembly’s economic affairs committee voted on 22 March for a ban and this proposal is expected to move to the plenary at the end of this month.
In addition to banning influencer marketing of risky financial products, Finance Watch calls for mandatory risk warnings in online advertising of retail investment and consumer credit products to make sure the risks of these products are properly flagged to consumers. These two types of products bear financial risks for consumers which can be substantial, especially for vulnerable consumers.
Therefore, Finance Watch welcomes IMCO’s proposal that clear and prominent risk warnings on advertising concerning consumer credits and retail investment products sold online be made mandatory. Risk warnings would encourage consumers to reflect before a purchase, and help counter overconfidence and optimism bias when purchasing a financial service, reducing the planning fallacy in which people tend to plan the best possible case.
Today’s vote follows a proposal from the European Commission in May last year, and the agreement of a general approach by the Council of the European Union earlier this month. The next step in the legislative process is negotiations between these three institutions to align on a final legislative text, which are expected to begin at the end of April.
To arrange an interview with Peter Norwood, Senior Research & Advocacy Officer at Finance Watch, please contact Alison Burns at firstname.lastname@example.org or call on +32 (0)471577233
About Finance Watch
Finance Watch is an independently funded public interest association dedicated to making finance work for the good of society. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and the public. Finance Watch’s members include consumer groups, housing associations, trade unions, NGOs, financial experts, academics and other civil society groups that collectively represent a large number of European citizens. Finance Watch’s founding principles state that finance is essential for society in bringing capital to productive use in a transparent and sustainable manner, but that the legitimate pursuit of private interests by the financial industry should not be conducted to the detriment of society.
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