Navigating Wild West Of Finfluencers: SEBI's Mission To Protect Investors

The changing landscape of financial influence in the age of social media is reflected in SEBI's decision to regulate the activities of financial influencers.

Finfluencers have been able to gain large numbers of followers because of their ability to simplify intricate concepts and actions for the average person.

Source : Getty

By Sandeep Agrawal

Social media has changed how people communicate, interact, and build knowledge. One key change has been in the way people access and consume information, including financial advice. In this unregulated wild west of social media, financial influencers (‘finfluencers’) have transformed the delivery of financial advice. They have gained popularity by making financial concepts more accessible to laymen. However, finfluencers have mushroomed across platforms, leading to rising concerns about the quality and authenticity of the advice being offered. The Securities and Exchange Board of India (SEBI) recently released a consultation paper on regulating the association of SEBI-registered intermediaries/ regulated entities (RIs/ REs) with unregistered entities such as finfluencers.

This paper comes on the heels of the Advertising Standards Council of India (ASCI) guidelines revising its guidelines for ‘finfluencers’. The guidelines now mandate SEBI registration for offering investment-related advice. The guidelines have further contextualised an influencer as someone with the power to influence the purchasing decisions or opinions as a result of their authority, knowledge, position, or relationship with their audience. Among other requirements, social media influencers must make advertisement disclosures with regard to any content wherein they have a material connection with the advertiser. This will bring transparency in financial advice, with social media users now becoming aware of the relationship between the influencer and the advertiser, if any.

Finfluencers have been able to gain large numbers of followers because of their ability to simplify intricate concepts and actions for the average person. This appeal is further magnified by India's low financial literacy rate of 27 per cent (2019 Financial Literacy and Inclusion Survey - National Centre for Financial Education). In May 2023, SEBI penalised a well-known finfluencer on the allegations of offering investment advisory services without obtaining the requisite registration. It was followed by the penalisation of another finfluencer, illustrating the regulatory body’s commitment to regulate finfluencers. 

A significant portion of these influencers are unregistered entities that create financial content and share information and advice. The areas of advice are spread across sectors regulated by SEBI, RBI, PFRDA, and IRDA. In addition, only a handful have the requisite qualifications and expertise, while others are operating in an area of regulatory arbitrage. The lack of oversight raises critical concerns about the existence of potential conflicts of interest and the authenticity of financial advice. It is a situation wherein these unregistered entities can entice their followers to purchase certain services and products or to invest in certain securities in return for undisclosed compensation. A handful of scenarios wherein RIs/ REs have been found to be working with these unregistered entities to promote their products and services have also come to light. The consultation paper proposes a range of measures aimed at regulating the relationship between RIs/ REs and unregistered entities. The recommendations include:

• Prohibition on RIs/ REs from engaging in any direct or indirect association with unregistered entities for the purposes of product/ service promotion or advertisement
• Prevent the unauthorised disclosure of sensitive client data to unregistered influencers
• Mandatory requirement for registered financial influencers (finfluencers) to prominently display their registration number, contact information, and investor grievance redressal helpline. 
• Adherence to advertisement guidelines set forth by regulatory bodies such as SEBI
• Report instances of unregistered entities utilising the name of RIs/ REs to the enforcement agency in order to facilitate appropriate action

The changing landscape of financial influence in the age of social media is reflected in SEBI's decision to regulate the activities of financial influencers. As audiences looking for financial guidance continue to be drawn to finfluencers, it is the responsibility of the regulatory bodies to find a balance between accessibility and authenticity. The consultation paper is an important step towards protecting the interests of investors. The resultant regulations will contribute greatly towards promoting transparency and accountability in the world of financial influence. It will become a critical instrument in protecting investors from malicious and bad actors who may not have the best of intentions.

(The author is the Director and Co-Founder of Teamlease Regtech)

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