Regulatory Proposals for a Balanced Framework for Finfluencers

IOTA’s Response to IOSCO’s Consultation

TL;DR:
The IOTA Foundation advocates for clear regulations on financial influencers (finfluencers) to balance innovation and investor protection. Key recommendations include stricter disclosure rules, AI-driven oversight, global cooperation, and financial education for both investors and influencers. Strengthening transparency and accountability will help mitigate risks like misleading promotions and market manipulation.

Financial influencers ("finfluencers")  play a crucial role in the crypto space, helping to educate and inform audiences in a fast-moving and often complex industry. Their ability to break down technical concepts and market trends makes them valuable contributors to broader financial literacy. However, the very nature of decentralized finance and the emphasis on “doing your own research” (DYOR) create a unique challenge: without clear regulatory guardrails, retail investors can be exposed to misinformation, hidden conflicts of interest, and outright market manipulation.

The IOTA Foundation supports a balanced regulatory approach that recognizes the value of finfluencers while ensuring transparency, accountability, and investor protection. Our response to a consultation on finfluencers by the International Organization of Securities Commissions (IOSCO) outlines key measures to mitigate risks without stifling innovation, from standardized disclosure requirements to AI-driven oversight and cross-border enforcement.

Defining Finfluencers: A Key Step Toward Regulation

A clear, globally adaptable definition of finfluencers is crucial to regulatory efforts. IOSCO should define finfluencers based on their intent and activity – focusing on those who promote financial products, whether paid or unpaid. By capturing the promotional intent rather than just compensation, regulators can ensure that all influential financial content is subject to appropriate rules. The definition should also recognize the diverse content formats finfluencers use, from social media posts to group chats and live streams.

Strengthening Oversight and Accountability

Many jurisdictions lack specific regulations for finfluencers, leading to inconsistent reactive enforcement. A dedicated regulatory framework should focus on three pillars:

• Disclosure: Finfluencers must prominently disclose financial incentives and relationships.
• Accountability: Market intermediaries using finfluencers should ensure compliance with transparency and ethical standards.
• Oversight: Regulators and supervisory authorities should employ AI-driven tools to monitor online platforms for misleading financial promotions, enhancing enforcement capabilities.

Given the global nature of finfluencer activity, cross-border cooperation is essential. A shared registry of flagged influencers and a “Know Your Finfluencer” (KYF) protocol for market participants could enhance international enforcement efforts.

The Role of Education

Investor education is key to mitigating risks associated with finfluencers. Initiatives should teach retail investors to critically evaluate financial content, recognize red flags such as unrealistic returns, and verify information from multiple sources. Similarly, finfluencers should be encouraged to pursue optional certification programs that promote responsible financial communication. Leveraging blockchain technology, such as verifiable credentials stored on the IOTA network, could enhance transparency in the certification process.

Enhancing Good Practices

To strengthen regulatory approaches, IOSCO should:

• Implement AI-driven monitoring to detect financial misinformation.
• Collaborate with social media platforms to enforce financial disclosure policies.
• Establish a global database of compliant and non-compliant finfluencers.
• Encourage financial institutions to conduct due diligence before engaging with finfluencers.

Empowering Retail Investors

Retail investors should be equipped with tools to make informed decisions. Practical tips include diversifying information sources, cross-checking financial claims, and avoiding emotionally driven investment decisions influenced by finfluencer hype. Importantly, investors should know how to report misleading or fraudulent content to regulators and platforms.

Moving Forward

As digital financial content evolves, striking the right balance between fostering financial education and protecting investors is paramount. Through its engagement with IOSCO, the IOTA Foundation advocates for a regulatory approach that embraces innovation while ensuring transparency, accountability, and investor confidence in financial markets.

Key Takeaways from IOTA’s Advocacy on Finfluencer Regulation

• Balancing Innovation & Protection – Regulations should safeguard investors while protecting the right to freedom of opinion and expression. 
• Clear Definition – IOSCO should define finfluencers based on promotional intent, not just compensation.
• Disclosure Requirements – Finfluencers must transparently disclose financial incentives and affiliations.
• Accountability for Market Intermediaries – Firms using finfluencers must ensure compliance with ethical standards.
• AI-Driven Oversight – Regulators and supervisory authorities should leverage AI tools to detect misleading financial content in real-time.
• Cross-Border Collaboration – Establish global registries and a “Know Your Finfluencer” (KYF) protocol for transparency.
• Investor Education – Teach retail investors to critically assess financial content and recognize red flags.
• Finfluencer Certification – Introduce voluntary regulatory training and blockchain-based credential verification.
• Social Media Responsibility – Platforms must enforce financial disclosure rules and remove deceptive content.
• Actionable Enforcement – Strengthen penalties for fraud, enforce stricter monitoring, and improve reporting mechanisms.