Arising Legal Concern in

Endorsement Practices by Social Media Influencers in Malaysia:

A Comparative Perspective

Nur Amalina Faizol

, Nor Fadzlina Nawi

Faculty of Law, Universiti Teknologi MARA, Malaysia

Department of Law, UniversitiTeknologi MARA,Cawangan Negeri Sembilan, Malaysia

Keywords: Social media influencer, Endorsement, Marketing, Law, Regulations.

Abstract: Many businesses, in their search for a more effective way in promotingtheir products or services have

discovered that social media is an important communication channel in the digital marketing landscape. They

are now recruiting the services of individuals termed as ‘social media influencers’ – individuals who have a

significant following on social media –for marketing purposes. These so-called ‘influencers’ engage in

products or services endorsements for marketeers through the myriad of social media channels, often in

exchange for money or free or discounted products or services. Marketeers and influencers, however, should

be concerned of the legal issues involved in the practices of using the social media for products or services

endorsement. Employing content analysis of relevant literature and laws, this paper discusses the different

types of ‘influencers’ and reviews selected social media influencers’ marketing activities in Malaysia and

explores the associated legal concerns. One major concern, is the lack of disclosure in these endorsement

practices under marketing laws. Latest regulatory developments from the USA and UAE in dealing with

influencer marketing are also examined and compared to with the laws in Malaysia. The paper addresses the

differences in the scope and coverage of the regulations and acknowledges that Malaysia needs to welcome

changes in the laws of influencer marketing in the near future.

1 INTRODUCTION

Social networking using social media applications

have become increasingly popular and important

communication channels in our everyday lives. As of

April 2018, Facebook for example, recorded about

2.2 billion monthly active users and about 1.4 billion

daily active users (Smith & Anderson, 2018; Stout,

2018). As for YouTube, there are over 5 billion

videos viewed every day, with daily active users of

over 30 million people (Stout, 2018). Whilst

Instagram, a social networking app made for sharing

photos and videos, has now garnered over 500 million

daily active users on their site after its launch 8 years

ago (Stout, 2018).

The growth of these social media users has opened

a new wave of marketing trend. Many business,

including sole proprietors, in their search for a more

effective way in promoting their products or services,

have discovered that social media is not only a

communication channel but has also become a much

savvier marketing tool in the digital landscape (Tuten

& Solomon, 2017; Lipschultz, 2018). Several studies

have shown that, marketeers agree that promoting

their products and services on social media is an

effective marketing strategy in this era (Ashley &

Tuten, 2015; Clark, Black, & Judson, 2017; Hudson,

Li Huang, Roth, & Madden, 2016).

In the past, marketing focused only on four

elements; product, price, platform and place

(Brassington & Pettitt, 2005). However, with the

advance of social media, it has now allowed for an

added important element in marketing: people

(Mangold & Faulds, 2009). Involving people here

means a strategy which includes listening to and

engaging with individuals who may be influential in

coaxing customers, including potential customers

towards a particular product or service through social

media, hence the term ‘Influencer Marketing’ or as

Joe Sinkwitz termed it as ‘the digital version of mouth

marketing’ (Sinkwitz, 2016). Businesses are now

recruiting the services of these individuals termed as

‘social media influencers’ to do their bids in

372

Nawi, N. and Faizol, N.

Arising Legal Concern in Endorsement Practices by Social Media Inﬂuencers in Malaysia: A Comparative Perspective.

DOI: 10.5220/0010051903720378

In Proceedings of the International Law Conference (iN-LAC 2018) - Law, Technology and the Imperative of Change in the 21st Century, pages 372-378

ISBN: 978-989-758-482-4

marketing their products or services (Barker, 2018;

Glucksman, 2017; Khamis, Ang, & Welling, 2017).

Engaging these social media influencers for

products or services endorsement, however, raises

certain legal concerns. Although regulations may

vary, social media influencers must adhere to certain

disclosure rules regarding their advertising

relationships with the businesses, including when the

influencer receives a free product and/or

compensation in exchange for his or her endorsement,

testimonial or review (Boerman, Willemsen, & Van

Der Aa, 2017; (Khamis, Ang, & Welling, 2017).

How regulations dealt with such concerns vary from

one jurisdiction to another which, will be discussed

further in the paper. This paper highlights the types of

‘influencers’ and the endorsement practices of social

media influencers in Malaysia and the legal issues

involved.

2 METHODOLOGY

The paper studies the different types of social media

influencers and their endorsement practices on

selected social media channels and the associated

legal concerns by comparing Malaysian laws with

that of the USA and the UAE. Reviews of

jurisdictions worldwide, shows that there are two

different approaches in dealing with influencer

marketing. These two jurisdictions, considered to be

at the forefront of specifically regulating influencer

marketing, are selected to demonstrate the differences

in these regulatory approaches. The study employs

content analysis of relevant literature and laws and

regulations. The following Table 1 display the laws

and regulations that have been analyzed in this study.

Table 1: Comparative Laws and Regulations.

Malaysia USA UAE

Consumer

Protection Act

1999

Trade

Commission

Act

Consumer

Protection

Law (No.3)

2003

Consumer

Protection

(Electronic

Trade

Transaction)

Regulation 2012

Federal Trade

Commission

Title 16 (Code

of Federal

Regulation

Part 255)

Guides

Concerning

The Use Of

Endorsements

Federal Law

No. 11 of

2016 on the

regulation

and powers

of National

Media

Council

(NMC)

And

Testimonials

In Advertising

Malaysian Code

of Advertising

Practice

Electronic

Media

Regulation

Communications

and Multimedia

Act 1998

The

Communications

and Multimedia

Content Forum

of Malaysia

3 SOCIAL MEDIA INFLUENCER

ENDORSEMENT PRACTICES

Social media influencers are those individuals who

have a significant following on social media accounts

including Twitter, Instagram and Facebook (Smith,

Kendall, &Knigh, 2018). These so-called

‘influencers’ are a new type of ‘third parties’ that the

marketers engage with for products or services

endorsements through the myriad of social media

channels, often in exchange for money or free or

discounted products or services. These ‘influencers’

are a select few people who have the power to affect

a purchase decision of others because of their

authority, popularity or relationship with their

followers (Smith, Kendall, &Knigh, 2018).

Social media influencers can currently be

categorized into a few groups of people with

influence (Khamis, Ang, & Welling, 2017) including

celebrities, industry experts, bloggers and micro

influencers. Interestingly, unlike their more famous

category of social media influencer, i.e. the celebrities

which comes in the likes of artists, singers and actors,

micro influencers are normal everyday people who

have a considerably significant number of followers

on social media (Khamis, Ang, & Welling, 2017).

People follow them on social media because of

factors which includes their sense of fashion and

style, knowledge or maybe because of their specialist

niche. For example, one local micro influencer,

Khainina Khalil, a UiTM graduate in interior

architecture has 86.9k followers on the photo sharing

app, Instagram. She is being followed for her fashion

sense and style and beauty tips. She caught attentions

from many brands to advertise their products on her

page. She also admits that 50% percent of her time,

effort and attention is now focused on her job as a

Arising Legal Concern in Endorsement Practices by Social Media Inﬂuencers in Malaysia: A Comparative Perspective

373

social media influencer. Another local social media

influencer on Instagram, FaizDickie, who started as a

micro influencer, has now reached celebrity status

with up to 613k followers on his account. Faiz, whose

real name is MohdNasralFaiz started of his Instagram

account uploading his parody videos or his comic-

antic strips of trending local issues. His parodies and

comic relief were well received that he garnered

significant followers. He later moved on into paid

review services for various products and services on

his account.

On YouTube, these micro influencers are

commonly active as video bloggers, also known as

‘vlogger’, who uses the medium to share with their

subscribers about a range of things, which could be

something of interest to them – their reviews of hotels

and services or their favorite make-up line or

products. A local vlogger, FarhanahFirdaus (or better

yet known as Faafirds on her channel) concentrates

on expressing her love for makeup, beauty and

fashion. She currently has 67k subscribers on her

channel and has an average of between 15k to 25k

viewers for each of her videos. These micro

influencers as social media influencer have a strong

bond with their followers, and therefore their

persuasive power or influence over their followers for

products or services endorsements are currently

highly sought after by marketeers.

Traditionally, endorsement have been performed

by celebrities using channels in the mass media since

the late nineteenth century (Erdogan, 1999).

However, millennial’s dependence on social media,

means that they are no longer regularly exposed to

conventional media, and therefore getting less

influenced by traditional marketing strategy. This

does not necessarily that mean endorsement practices

are no longer relevant. It may not be the most

effective in the traditional sense, but it has somehow

found a better fit in the realms of social networking

through these social media influencers. These social

media influencers employed endorsement practices

for marketeers through various ways. They may

review certain products or services by posting

selected images or videos on their social media

accounts in exchange for money, or free or discounted

products or services. They may also be employed to

set off certain contests or giveaways by marketeers

for certain products or services. They may be invited

to attend certain products or services launch events

sponsored by marketeers and expected to share

images or videos of the event which, inevitably create

brand awareness.

Marketeers, either brands or sole proprietors are

now spending more money to pay the influencers to

endorse their products or services on social

(Bloglovin’, 2017). According to a study by

Bloglovin’, about 63 percent of brands have increased

their budget for influencer marketing in 2017. From

that study, they also found that 71 percent of

marketers said influencer marketing raised significant

awareness towards their brands through social media

(Bloglovin’, 2017). The rise of influencer marketing

also helps the brand to connect directly with the

consumers and is the most effective way to attract

their targeted audience (Glucksman, 2017). There are

claims that these social media influencers have now

become more powerful than traditional celebrities

(Khamis, Ang, & Welling, 2017).

4 LEGAL CONCERNS AND

COMPARATIVE

REGULATORY

DEVELOPMENTS

Research may have shown that influencer marketing

is a successful way to endorse products and services

in this digital era, but considering that this trend is a

new phenomenon in the marketing field, including in

Malaysia, marketeers and influencers should be

concerned of the legal ramifications involved in the

practices of using the social media influencers for

products or services endorsement. One of the most

common legal issue is violation of endorsement

practices under marketing laws – the lack for

disclosure.

4.1 Disclosure

Unlike traditional marketing method, for example

advertisements on television in which we recognize

that celebrities are paid to promote certain products

or services, such disclosure is almost absence in

influencer marketing. Social media influencers must

disclose their advertising relationships with the

businesses, including when the influencer receives a

free product and/or compensation in exchange for his

or her endorsement, testimonial or review.

Sufficiently disclosing the partnerships between

marketers and influencers increases transparency and

prevents consumers from feeling deceived about a

product or service endorsed by the influencer.

Most local social media influencers reviewed for

the study, do not demonstrate the realization that they

have certain responsibilities to be honest to their

follower when making endorsements for marketeers.

Some of them may even deceived their followers by

iN-LAC 2018 - International Law Conference 2018

374

displaying in their reviews that they are regular users

of the product or they frequent certain services, when

this is far from the truth. The lack of disclosure of the

partnerships between marketers and influencers

confused consumers into believing that these social

media influencers are making an honest review about

certain product or services, whilst in fact there were

merely endorsing them for marketeers. The lack of

disclosure therefore, leads towards deceiving

information and misleading followers and consumers

when making their purchase decisions.

4.1.1 Malaysia

In Malaysia, there are currently no specific

regulations that cover influencer marketing on social

media. Generally, consumerism matters and its

protection in the country are dealt with by the

Consumer Protection Act 1999 (CPA). In 2007, an

amendment widens the scope of the CPA to include

electronic commerce transaction. The CPA provides

protection of e-consumers against misleading and

deceptive conduct, false representation and unfair

practices. The protection to e-consumers has also

been further strengthen by the passing of the

Consumer Protection (Electronic Trade Transaction)

Regulation 2012, which impose on online business

suppliers and online marketplace operators to take

certain steps to protect the interests of consumers. The

regulation states that all the e-marketers have a duty

to disclose all the relevant information that the e-

consumers should know before buying the products.

The 2012 Regulations apply to any person who

operates a business through a website or an online

marketplace for supplying goods or services (Online

Business Supplier) and any person who provides an

online marketplace (Online Marketplace Operator).

An ‘online marketplace’ under the regulation refers to

a website where goods or services are marketed by

third parties for trade. However, this definition clearly

does not cover goods or services marketed on social

media channels.

In terms of marketing, legislations are mostly self-

regulatory and introduced by the Advertising

Standards Authority Malaysia (ASA). The ASA, as

an independent body, is established in 1977 to

provide independent security, self-regulatory system

set up by the industry with a vision is to create

Malaysian advertising free from any fraudulent

conduct. The ASA administers the Malaysian Code

of Advertising Practice (hereinafter the Code) to

regulate its activities, which includes investigating

complaints and copy advice, a service designed to

help create an advertising campaign in accordance

with the requirements of the Code for advertising and

marketing communication. Responsibility for

observing the Code not only rest with the advertiser,

but also applies to any advertising agency or medium

involved in publication of the advertiser’s message to

the public. However, the Code is only applicable to

“marketing communication or advertising wherever it

may appear in the printed form.” This meant that the

Code is not applicable to goods or services marketed

on social media channels.

Matters relating to content over the electronic

networked in Malaysia are, however, administered by

the Communication and Multimedia Content Forum

of Malaysia (CMCF). The CMCF is introduced in

compliance with the Communications and

Multimedia Act 1998 in 2001 by the Malaysian

Communications and Multimedia Content Code

(MCMC). The MCMC is empowered by the

Communications and Multimedia Act 1998 to

establish an industry body responsible for the

preparation of a Content Code facilitating industry

self-regulation, the CMCF. It acts as a Society, with

representation from all relevant parties, to govern

content and address content related issues

disseminated by way of electronic networked

medium. The CMCF operates a Complaints Bureau

that addresses grievances from consumers and

industry members on matters relating to content over

the electronic networked medium.

Part 3 of the Code provides guideline that applies

to advertisements communicated electronically that

includes testimonials and endorsements, however, the

Code itself only applies to all content made available

in the content industry by the “Application Service

Providers”. The Code defines ‘Applications Service

Provider’ as a person who provides applications

service; persons who provide functions such as voice

services, data services, content-based services,

electronic commerce and other transmission services.

The Licensing Regulations 2001 do further provide a

detailed list of those considered as Application

Service Providers, but they do not include services

provided through or by the social media channels.

The absence of specific legislations on influencer

marketing on social media in Malaysia, does not

mean that traditional laws on marketing should not be

applicable to marketing in social media. However, the

reviewed legislations have clearly limited their scope

and coverage of protection and lack detailed guideline

in dealing with social media influencer. It is high time

for Malaysia to acknowledge this growing concern in

influencer marketing and its role in the social media

and welcome changes in the laws in dealing with

them. Lessons in doing so can be learnt from other

Arising Legal Concern in Endorsement Practices by Social Media Inﬂuencers in Malaysia: A Comparative Perspective

375

jurisdictions. The USA and the UAE, for example are

two jurisdictions that have recently tackled influencer

marketing. Review of both jurisdictions shows that,

not only are they considered to be at the forefront of

specifically regulating influencer marketing, but they

have two different regulatory approaches.

4.1.2 USA

In the US, influencer marketing activities is

specifically regulated by the Federal Trade

Commission (FTC). The FTC is a bipartisan US

federal agency, established on 26 September 1914 by

the Federal Trade Commission Act of 1914 (FTC

Act). The FTC's mission is to protect consumers and

promote competition in the US. Since 2009, the FTC

has insisted through its ‘Guidelines Concerning the

Use of Endorsements and Testimonials in

Advertising’ that when marketers use endorsement or

testimonial, the relationship or material connection

between the parties must be disclosed. The

Guidelines are not regulations which comes with any

civil penalties associated with them. But advertisers

who failed to follow the guides, may be investigated

by the FTC for unfair or deceptive practices under the

Section 5 of the FTC Act.

In 2017, following the case against Lord & Taylor

[Complaint at 3, Federal Trade Commission v. Lord

& Taylor, LLC., (F.T.C. 2016) (No. C4576)], the

FTC had updated its guidelines to give detailed

instructions on proper social media endorsement

practices. In the Lord & Taylor’s case, the fashion

retailer was claimed to have been engaged in

deceptive commercial endorsement actions under the

FTC Act by not disclosing that they have

compensated several fashion influencers to endorse

their dress on Instagram in 2015. The 2017 updates

provided specific examples of illegal marketing

practices and guidelines for social media marketing to

avoid similar cases as the Lord & Taylor’s case.

Initially the FTC guidelines were viewed as mere

warnings because the FTC was not taking legal action

against social media users who breach the guidelines.

However, this notion changed in late 2017. On 7

September 2017 the FTC brought its first legal action

against CSGOLotto, Inc., and its officers Trevor

Martin and Thomas Cassell (In the Matter of CSGO

Lotto, Inc., File No. 1623184 #00002). CSGOLotto

stands for Counter-Strike Global Offensive Lotto, a

market place for online-video game virtual item

transactions. The complaint claimed that the officers

violated Section 5(a) of the FTC Act by engaging in

illegal marketing practices on social media platforms

by paying other social media influencers to post on

their social media accounts about CSGOLotto. These

social media influencers were also prohibited from

giving any negative comments about CSGOLotto’s

website.

Following the CSGOLotto’s case, the FTC further

announced that 21 warning letters were sent to social

media influencers, and a further 90 educational letters

sent to the influencers and brands, reminding them

that the influencers must clearly disclose the

relationship with the brands in their posts. The actions

by the FTC shows its desire in ensuring that social

media influencers are deterred from engaging in

illegal marketing practices and the effects from non-

compliance may include legal action.

As influencer marketing become even more

dominant in the social media landscape, the FTC

recently (2018) updated its endorsement guidelines

requiring social media influencers to disclose that

they have a paid relationship with the companies or

brands they promote so consumers are aware that it

may not be a genuine endorsement and asses the

social media posts credibly. The guidelines provide

clear requirements on the means for the social media

influencer to disclose the material connection with the

brand, even if marketeers gave free products to an

influencer in hopes for a positive review from the

influencer. If such material connection is not

disclosed, the influencer can be held liable for

deceptive social media endorsement.

The FTC guidelines show the FTC’s intention to

regulate illegal marketing practices on various social

media platforms and ensures that the social media

marketing ecosystem take adequate precautions

against any possible legal actions from the FTC or

consumers affected by their endorsements.

4.1.3 UAE

In the UAE marketing laws are not regulated by a

single entity nor legislation. They are regulated by

numerous laws including the Printing and Publication

law, National Media Council (NMC) regulations,

Cybercrime law and laws governing consumer

protection and commercial activities. Section 4 of the

UAE’s Consumer Protection Law (No.3), 2003

specifically prohibits deceptive and unfair practices

in general regardless of the medium that the

marketers use. This means that any deceptive

practices on social media platforms come under the

purview of the Consumer Protection Law.

However, in March 2018, the UAE took a step

forward, but somewhat different from the guideline

approach in the USA, by announcing through its

NMC that from June 2018 all influencers, creators

and social media celebrities will need to secure a

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media licence, under a new regulation. The media

licence will be like those that magazines and

newspapers acquire from the authorities in the UAE.

It costs 15,000 AED annually. The NMC under

Article 4 of the Federal Law No. 11 of 2016 on the

regulation and powers of National Media Council is

given the powers to draft the media policy of the

UAE, including enacting media legislations and

ensuring that they are implemented. The Electronic

Media Regulation specifies that the licensing applies

to anyone who does not already hold a trade license

and those who accepts paid collaborations, sponsored

posts and/or brand deals in the UAE for creating

promotional content to be shared with their followers.

Those who failed to comply with the new regulations

may be fined up to AED 5,000.

The regulation also stipulates that, apart from

licensing, any media activities on social media

platforms carried out for commercial purposes, shall

meet the applicable advertising standards or criteria

adopted by the council and the parties involved must

be responsible for the content on such media. Social

media influencers, blogs and personal web, including

individuals and organisations that voluntarily

promote work are not subject to the new regulation

provided they are non-commercial in nature. How the

UAE authorities will manage to differentiate the

activities between commercial and non-commercial,

especially when they involve micro influencers and

enforced the new regulation remains to be seen.

5 CONCLUSIONS

Social media’s role in influencer marketing will

continue to grow, even in Malaysia. The use of social

media and influencers for products or services

endorsement creates better engagement and

awareness for customers and it turns out to be a well

utilised tool for marketing purposes. However, its

usages raise some legal concerns. This article

discussed one major legal issue associated with

influencer marketing endorsement activities on social

media – the lack of disclosure. Although,

endorsement have been regulated by traditional

marketing laws by many countries, including

Malaysia, but only certain jurisdictions have provide

a specific legal framework to regulate influencer

marketing on the social media platform. Deceptive or

false claims in marketing will lead to many social

media marketeers and influencers into liabilities.

Non-disclosure of the material relationship between

the influencers or endorsers and the marketeers or

brands leads to unfair influence on the consumers’

purchase decision and in turns is a form of deception

under the law. Appropriate steps must be devised to

avoid or mitigate this concern. Terms and conditions

that specify upon which these influencers and

marketeers operate must be made clear. Regulations

and legislations thus, play a big role in providing such

guidance and ensuring compliance. Latest regulatory

developments from the USA and UAE in dealing with

influencer marketing shows two different approaches

in their regulations, through guidelines and licensing,

while Malaysia has yet to arrive at any specific rules

nor guidelines. Malaysia needs to acknowledge the

need for reform in the matter and welcome changes in

the laws of influencer marketing soon. Lessons and

experiences learnt from various jurisdictions

worldwide, including the USA and the UAE on the

development of the laws should be carefully

considered.

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