SEBI paper hits at 'Finfluencer' menace

The Securities Exchange Board of India (SEBI) has floated a consultation paper that seeks to curb the menace of unregistered finfluencers misleading gullible investors in stock markets.

The regulator seeks to ban any SEBI-registered intermediary or regulated entity, including their agents and representatives, from dealing with any unregistered finfluencer for the purpose of promoting their products or services.

Through this consultation paper, SEBI has made a smart move by seeking to curb the advertisers, who are easier to identify and control, rather than individual finfluencers.

The consultation paper comes weeks after the Fortune India article (of July 04 and July 12) on the menace of finfluencers went viral. Readers noted the borderline illegal activities of the 'finfluencers' who continue to operate without SEBI registration.

Fortune India pointed out that many of them were selling financial products of various companies to their followers without disclosing whether they were getting any compensation from those companies. The products sold by the finfluencers ranged from subscription to SEBI-registered brokerages to trading software, to market tracking tools.

While the Advertising Standards Council of India (ASCI), along with MEITY (Ministry of electronics and information technology), has already released guidelines for social media influencers for disclosure of advertising and promotion associations tied to their posts and content, finfluencers have been blatantly flouting the norms, perhaps because there is no penalty associated with the same. Self-proclaimed finfluencer Akshat Shrivastava is a prime example of such stark disregard for ASCI regulations. Shrivastava continues to do business as usual despite being on ASCI’s list of violators for more than a year now. When Fortune India questioned him on the steps he has taken in response to ASCI’s action, Akshat did not respond to the query.

Why restricting SEBI-registered entities will curb finfluencer menace?

The regulator aims to disallow its regulated entities from any kind of association, monetary or otherwise, with unregistered finfluencers for the purpose of promoting their products or services. Moreover, the regulator also intends to direct its registered intermediaries not only to actively dissociate themselves from any unregistered finfluencer but also file criminal charges against any finfluencer who associates with them voluntarily. SEBI has directed the regulated entities to bring such finfluencers to the notice of enforcement agencies so that the agency may take appropriate action, including filing criminal charges under Section 420 of IPC 1960, for impersonation and fraud.

By thwarting the registered entities’ nexus with the 'finfluencers' SEBI will not only be hurting one of the revenue streams of 'finfluencers' but also hinder them from creating a perception that they are legitimate entities because registered intermediaries are using them as brand endorsers.

Finfluencers like Dr. Devendra Singh, Sashwat Verma of Amrevx, and many more, seem to be associated with Angel One and Fyers platforms as they actively urge their viewers to open their accounts on these platforms, without revealing any commercial association with the companies. Similarly, Akshat Shrivastava promotes zero brokerage stock trading platform, Mstock, owned by Mirae Asset, that offers discount to his subscribers and referral fees to Akshat.

The Consumer Protection Act imposes penalty upon an advertiser, as well as the brand endorser, for misleading advertising and promotion of any product or service. However, since the finfluencers do not disclose any commercial relationship with the products and services they promote, it is difficult to bring them under the ambit of Consumer Protection Laws. Under such circumstances, it is more effective to direct the advertisers to actively dissociate themselves from the unregistered 'finfluencer' community as this cohort has hurt many gullible investors through tall promises and misleading communications.

ASCI and MEITY could also take a leaf from SEBI’s book to curb the hazard of social media influencers, active in other sectors, who hide their commercial association with advertisers under the garb of well-meaning advice.

Consultation paper implies work in progress

While SEBI has made multiple points on the restrictions to be imposed on the entities it regulates, the consultation paper contains no provision for the penalties that may be imposed for breach of conduct. Without penalties the entire exercise will be ineffective, as ineffective as ASCI guidelines for social media influencers.

It is hoped the consultation paper shapes up as a directive soon and SEBI takes its first concrete measure in containing the finfluencers’ encroachment in a domain that should be operated only by registered entities, accountable for their actions and words.

The SEBI consultation paper is currently open to public comments on limiting the association of SEBI registered intermediaries or regulated entities, and their agents/representatives, with unregistered entities, including finfluencers. Anyone who wishes to contribute their thoughts and ideas on the paper may respond to the regulator by September 15, in the format prescribed in Para 5 of the paper.