CNB and finfluencers - beware of fines!

Author of the article: JUDr. Jakub Dohnal, Ph.D., LL.M., ARROWS (office@arws.cz, +420 245 007 740)

In recent years, there has been a significant increase in the number of digital content creators focused on finance, the so-called financial influencers ("finfluencers"). These creators are active on social media and other digital platforms, sharing information, advice or opinions on personal finance, investing and other financial topics. They can include financial experts as well as lay people drawing on their own experiences.

The Czech National Bank (CNB) warns that some investment contributions published by finfluencers may be subject to financial market regulation, in particular the Market Abuse Regulation (MAR) and the Capital Market Undertakings Act. Failure to comply with these rules can have serious legal consequences for influencers. 

What to watch out for?

1. Investment recommendations are subject to regulation

Any public communication containing advice, opinions or recommendations regarding the purchase or sale of investment instruments (shares, bonds, shares in investment funds, derivatives, etc.) may qualify as an investment recommendation under MAR. The CNB distinguishes between:

• Direct recommendation - an explicit invitation to buy, sell or hold an investment instrument.
• Indirect recommendation - a communication that evaluates an investment instrument (e.g., labeling a stock as "overvalued" or "undervalued") without directly advising how to handle it.

If a finfluencer provides direct investment recommendations, it must ensure:

The identity of the author and, if applicable, his/her employer.

• Date and time of publication.
• Objectivity of communication - clear separation of facts from opinions.
• Link to reliable sources.
• Indication of potential conflicts of interest.

In the case of audiovisual content, not all of this information needs to be part of the message itself, but it must be easily accessible.

2. Are you an expert? You have other responsibilities!

The CNB distinguishes between two groups of persons providing investment recommendations:

• Professional - a person working for a bank, securities dealer or other entity issuing investment recommendations.
• Expert - a person who repeatedly proposes investment decisions, acts as an expert or gives the impression of being an expert.

Finfluencers often fall into the category of professionals and therefore have additional responsibilities, such as:

• State the valuation method and the underlying assumptions of the recommendations.
• Disclose the recommended holding period and risk warnings.
• Disclose conflicts of interest and interests in recommended assets. 

3. Beware of investment advice!

A Finfluencer who provides personalised recommendations (e.g. advising specific users in comments whether to buy a particular stock) may be providing investment advice. This activity requires a securities dealer or investment intermediary licence. Providing advice without a licence can be fined up to CZK 150 million.

What is the risk of breaking the rules?

The Czech National Bank may impose the following for non-compliance with the regulation:

• Fines of up to CZK 15 million for natural persons and up to CZK 30 million for legal entities.
• In some cases, up to three times the undue benefit.
• For illegal investment advice, up to CZK 150 million or 10% of the company's turnover.

How to avoid problems?

Check that your content creation does not fall under investment recommendations. If so, follow the MAR requirements. Evaluate whether you are considered an expert - if so, comply with additional obligations. If you give personalised advice, secure an investment advice licence.

For further information, we recommend consulting the European Securities and Markets Authority (ESMA) or contacting financial regulatory experts.

Don't take unnecessary risks - follow the rules and protect your reputation! If you need any advice, get in touch and we'll be happy to help. We value the digital world.