SEBI cracks down on unregulated ‘finfluencers’

Tightening the noose around the unregulated 'finfluencers' in India, capital markets regulator SEBI has proposed to restrict the association of registered entities with such financial influencers and has also proposed a unique fee payment platform for registered investment advisers or research analysts.

The latest SEBI proposal comes via a consultation paper, which has been released more than a month after Fortune India reported about reluctance on the part of 'finfluencers' to register themselves with regulators, and how this burgeoning tribe of self-proclaimed financial experts is plaguing the internet.

As per SEBI, in recent times, the activities of ‘finfluencers’ have attracted wide public and media attention. They are usually unregistered entities, providing "catchy content, information, and advice on various financial topics to their several followers”.

SEBI says ‘finfluencers’ who are not registered with the relevant financial sector regulator may not have the "requisite qualifications or expertise" on the subject. "Worse, not being formally subject to a financial sector regulator’s code of conduct, they may not disclose any potential conflict of interest such as their association with or interest in the products, services or securities that they promote."

While some may be genuine educators, many are unregistered and unauthorised, SEBI opines. In this regard, the regulator says it has floated a separate consultation paper. It proposes a unique fee payment platform for registered IAs and RAs, which is aimed at helping investors identify, isolate and avoid unregistered entities or ‘finfluencers’.

The paper comes in the wake of fears that some unregulated ‘finfluencers’ may be enticing followers to "purchase products, services, or securities in return for undisclosed compensation" from platforms or producers. It seeks to restrict the association of SEBI registered intermediaries entities with “unregistered finfluencers”, to curb the flow of such compensation.

According to SEBI, it has come across instances where SEBI registered intermediaries rely on such finfluencers to promote their products and services. To address this issue, the regulator has also called for enforcement action against ‘finfluencers’ breaching SEBI rules. "This paper proposes to disrupt the revenue model for such finfluencers, so that the perverse incentives in the ecosystem reduce."

SEBI has said apart from having no association with ‘unregulated finfluencers’, SEBI-regulated entities will not share any confidential information of clients with them. Also, finfluencers who are registered with SEBI or stock exchanges, or AMFI will have to display such credentials on their platforms and make appropriate disclosures on posts.

Who are finfluencers?

Financial influencers, commonly called ‘finfluencers’, are those who provide information and advice on financial topics such as investing in securities, personal finance, banking products, insurance, real estate investment, etc., through social media, and have the ability to influence followers’ financial decisions.

They often attract prospective investors through engaging stories, messages, reels, and videos on various social media platforms such as Instagram, Facebook, YouTube, LinkedIn, Twitter, etc. That’s why, SEBI thinks their activities fall under areas regulated by financial sector regulators such as SEBI, RBI, PFRDA, and IRDA.

Notably, the Advertising Standards Council of India, had recently issued the ‘Guidelines for Influencer Advertising in Digital Media’, which define ‘influencer’ as “someone having access to an audience and power to affect such audiences’ purchasing decisions or opinions about a product, service, brand or experience, because of the influencer’s authority, knowledge, position, or relationship with their audience”.

SEBI has sought public comments on the issue by September 15, 2023.