The Financial Industry Regulatory Authority (FINRA) has fined M1 Finance $850,000 due to lapses in the fintech firm's supervision of social media influencers. This enforcement action involves the firm's influencer marketing campaign for brokerage accounts.
Between January 2020 and April 2023, M1 Finance conducted an influencer marketing campaign involving over 1,700 social media influencers to promote the firm's services. These influencers were tasked with creating content that showcased M1 Finance's brokerage accounts, enticing potential customers with the promise of financial freedom and flexibility.
Violations and Consequences
According to the regulator, investigations revealed numerous violations committed by M1 Finance and its influencers. The social media posts promoting M1 Finance reportedly failed to provide accurate information per the regulations. FINRA explained that the company misled the public with the allure of easy earnings as the influencers' posts fell short of regulatory standards.
Bill St. Louis, the Executive Vice President and Head of Enforcement at FINRA, mentioned: "As investors increasingly use social media to inform their financial decisions, FINRA’s rules on communicating with the public are especially critical. FINRA will continue to consider whether firms are using practices and maintaining supervisory systems that are reasonably designed to address the risks related to social media influencer programs."
Specifically, the claims regarding the firm's margin lending program were found to be misleading, with influencers falsely asserting that customers could repay margin loans at any time without any consequences.
Regulatory Oversight and Compliance
Additionally, the firm failed to review or approve the posts made by its influencers, contravening regulatory requirements. Besides that, M1 Finance lacked a reasonable supervisory system and written procedures for monitoring influencer communications. Thus, the company consented to the regulator's findings and has committed to rectifying these deficiencies.
Recently, FINRA fined Morgan Stanley Smith Barney LLC a hefty sum of $1.6 million for failing to promptly close out failed inter-dealer municipal securities transactions and to take timely actions to obtain physical possession or control of municipal security positions that exceeded 30 calendar days, Finance Magnates reported.
In its investigation, FINRA discovered instances where Morgan Stanley failed to cancel or close out 239 inter-dealer municipal transactions exceeding 20 calendar days after the settlement date, totaling approximately $9 million from December 2016 to August 2021.
