Sebi Finalising Draft Discussion Paper Over Guidelines For 'Finfluencers'

Earlier, the Sebi had clamped down on some WhatsApp groups and Telegram channels, which were used to leak key market-moving data

The Sebi has been planning to direct brokers, mutual funds to limit use of financial influencers to curb the spread of financial advice via social media advertising and marketing campaigns through such influencers.

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The Securities and Exchange Board of India (Sebi) will be finalising a draft discussion paper in a month or two to formulate rules and guidelines to regulate the mushrooming number of unregistered financial influencers or finfluencers who offer investment advisors to the public, the PTI reported. Sebi Chairperson Madhabi Puri Buch's statement comes on the heels of the income tax department reportedly sending notices to top 35 social media influencers for not paying taxes worth crores of rupees and after last week's searches on the top 13 Youtubers in Kerala for similar offences.

Buch said, "We are crystalising a discussion paper to regulate financial influencers. The paper should be ready for public comments in the next couple of months." Buch held a marathon board meeting wherein the board approved a rash of regulatory measures including halving of the share listing time to three days the present six after an IPO. The board also decided to tighten the disclosure norms for large foreign portfolio investors.

The Sebi chairperson said, "We've no problem if someone chooses to educate investors/would-be-investors about the market and investments. But there is a serious problem if they are offering unsolicited investment advice and are not registered with the Sebi." There are numerous unregistered finfluencers who are manipulating the market and offer qualified advice to the gullible public and earn huge money by way of commission from these platforms on one hand and on the other from the market by transacting on those stocks they talked up or talked down.

With the number of such people thriving on social media platforms like Youtube, Instagram, Telegram, WhatsApp, and Twitter in recent years, the market regulator has been cautioning the public against falling into their advisory traps on one hand and also hinting at bringing out regulations to contain their free-run.

After the February 2023 board meeting Sebi made its mind clear for the first time when its whole-time member Ananth Narayan Gopalkrishnan had said, "We'll come out a discussion paper seeking inputs for making effective measures to control unsolicited financial and market advice from social media influencers and also from unregulated investment advisors. After inputs from market participants, and other stakeholders, we'll issue guidelines to rein them in.” There is also the issue of unregistered investment advisors, who pose greater risks to gullible investors. More importantly, we see examples of misuse of their Sebi registrations by even some registered advisors, he had noted.

The need for guidelines for social media influencers on financial matters has been abuzz lately with the mushrooming of application-based content, where popular influencers promote a particular asset class without a proper licence or knowledge to do so.

Earlier, the Sebi had clamped down on some WhatsApp groups and Telegram channels, which were used to leak key market-moving data. This led to many large companies stopping their earnings pressers which were normally held on weekdays to Saturdays and also altogether stopping media interactions.

The market watchdog has been planning to direct brokers, mutual funds to limit use of financial influencers to curb the spread of financial advice via social media advertising and marketing campaigns through such influencers.

Since January 2022, Sebi has been saying it would come out with regulations to tame the so-called financial influencers, it has not yet issued anything but has been acting selectively on such manipulators.

For instance in January 2022, it found market abuse through stock recommendations using Telegram. On March 2 this year, Sebi cracked down on Youtubers and barred about 44 entities from the securities market in an interim order passed for manipulating prices and making illicit gains. Again, as late as May 27 this year, Sebi fined Rs 6.5 crore on finfluencer PR Sundar and banned him from the market for a year, for alleged violations of investment adviser norms.

Finance Minister Nirmala Sitharaman also addressed the concerns related to financial influencers and cautioned about the dangers posed by Ponzi apps offering financial solutions. The Advertising Standards Council has laid down guidelines for influencers who can influence purchasing and investing decisions.