Online financial scammers ‘have it relatively easy’

The Luxembourg Times is looking at the rising impact of financial influencers (finfluencers) and the quality of financial information shared on social media. In the fifth of ten instalments, experts call for more financial education and regulatory clarity.

Finfluencers have an outsized influence on younger generations but pose a risk to investors and household members of all ages.

“Financial influencers with bad intentions have it relatively easy,” observed Felix Pflücke, who studies finfluencers at the University of Luxembourg and is a lecturer in law at the University of Oxford.

Pflücke cited “low levels of financial literacy, difficult economic times for young people – some see crypto as their lottery ticket to jump on the housing ladder – and a parasocial relationship between the financial influencer and viewer” as reasons for finfluencer reach.

“There are also bad-faith actors in more traditional settings, although regulators at least have the possibility of intervening,” which the frequent cross-border provision of financial services and media consumption can complicate for national authorities.

Rules need clarification

“The biggest issue is that virtually all cases regarding finfluencers are cross-border. For example, the consumers are based in Europe and the finfluencer is in Dubai,” Pflücke explained. “Consumers and enforcement bodies [in Europe] will be unable to hold most bad actors accountable.”

The UK and France have taken an interesting approach to combating this problem, said Pflücke: “The UK Advertising Standards Authority (ASA) maintains a list of influencers who fail to comply with applicable legal rules. They will only be removed from the list once they have fully complied. Consumers can thus look up influencers – not just financial influencers – and see whether they have already been found to breach laws.”

“The French approach is somewhat more hands-on and may potentially breach EU law,” said Pflücke. “Every influencer based outside the European Union must have a representative in France. This representative could then be taken to court in case of breaches. The issue is that the competence for these matters is with the EU, so it is unclear whether the law would stand if challenged” before the European courts in Kirchberg.

“More regulation will certainly not resolve the cross-border issue, but a harmonised EU response and pressure on certain countries could,” said Pflücke.

More financial education needed in schools

Alex Barkley, managing partner at Lancero Capital Partners, a private equity and venture capital firm in London, suggests improving the gap in financial knowledge. “Start early,” he said. “Make financial education a core part of the school system, just like maths or science.

The Luxembourg Bankers’ Association (ABBL) has coordinated “Money Week” which has brought financial professionals into Luxembourg state primary schools since 2015. But many in the financial sector have said that one week of lessons falls short.

Another avenue is to “not be afraid to meet people where they are,” Barkley said. “We should be using TikTok, YouTube and Instagram to teach. These platforms aren’t the problem. They’re part of the solution.”

Just looking for more advice

For what it’s worth, Luxembourg residents of all ages are much more likely to trust a traditional financial advisor than a social media post, according to a 2024 poll by Swissquote, an online broker.

Gen Z investors, those aged between 18 and 26, were more likely than older age groups to trust advice from both social media and financial advisors, Swissquote found.

The perspective from four financial regulators on finfluencers and online financial advice will be covered in the next instalment.

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