South Korea is gearing up to impose stringent new regulations on social media personalities who promote cryptocurrencies and stocks, aiming to curb conflicts of interest and enhance transparency in the financial advice space. Democratic Party lawmaker Kim Seung-won, a member of the National Assembly’s Political Affairs Committee, is spearheading the effort by drafting amendments to the Capital Market and Financial Investment Business Act and the Act on the Protection of Virtual Asset Users, according to a report from Herald Business.
Under the proposed rules, influencers who repeatedly provide investment advice or receive compensation for promoting financial products or virtual assets will be required to disclose the compensation they receive and the specific assets they hold. This mandate will extend to advice delivered through various mediums, including publications, online communications, and broadcasts, with detailed guidelines to be established by presidential decree.
Penalties for Non-Compliance
The penalties for violating these new regulations could be as severe as those for market manipulation or insider trading, underscoring the government’s commitment to maintaining a fair and transparent market. Lawmaker Kim Seung-won emphasized the need for these measures, stating, So-called fin-influencers are emerging, offering investment advice to the public without compensation from positions of significant public influence. These individuals are providing inappropriate information and creating conflicts of interest, leading to unpredictable losses for investors.
Rising Incidents of Misleading Advice
The initiative comes at a time when the Financial Supervisory Service (FSS) has reported a significant uptick in incidents involving quasi-investment advisors (QIABs), entities that provide general investment advice via media. According to FSS data, reports involving QIABs soared from 132 in 2018 to 1,724 in 2024, highlighting the growing need for regulatory oversight.
Global Regulatory Trends
South Korea’s move is part of a broader global trend where regulators are tightening the reins on financial influencers. The United Kingdom’s Financial Conduct Authority (FCA) already requires financial promotions to be pre-approved, while the U.S. Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) have issued fines and reprimands for undisclosed promotions. In Italy, the market watchdog Commissione Nazionale per le Società e la Borsa (CONSOB) recently circulated new guidance from the European Securities and Markets Authority (ESMA), emphasizing that EU investment and advertising rules fully apply to social media ‘finfluencers.’
Looking Ahead
As South Korea and other countries continue to grapple with the challenges posed by the rise of financial influencers, the new disclosure rules represent a significant step towards ensuring that investors are better protected. By requiring transparency and accountability, these regulations aim to restore trust in the investment advice ecosystem and prevent the spread of misleading information. The success of these measures will likely influence similar regulatory efforts around the world, shaping the future of online financial advice.
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