The growing clout of finfluencers is putting Sebi regulations to test

Between April and September, ASCI has observed 71 violations of its disclosure guidelines by financial influencers

With people increasingly turning to social media for tips and hacks, financial influencers – or finfluencers, as they are called – are gaining clout. Armed with millions of followers, they have the power to influence stock prices or boost a mutual fund (MF) offering. This has posed a regulatory dilemma for the Securities and Exchange Board of India (Sebi). While the market regulator cannot control every social media post, it realises the need for clearer norms to govern and increase the accountability of finfluencers.

Sources said Sebi is considering ways through which such finfluencers can be brought under the regulatory net without trampling on any freedom of expression. At present, anyone doling out financial advice has to register as an investment adviser (IA) and comply with Sebi’s IA regulations.

Legally, finfluencers giving stock advice without IA licence can be hauled up by Sebi. However, there are endless investment tips doing the rounds on social media platforms such as Telegram, WhatsApp and Twitter.
 

“Monitoring social media isn’t very simple. However, we are trying to find a solution whereby at least those who are cashing out by giving advice on social media are brought under the regulatory ambit.” said a regulatory official. “One solution is to check if the so-called finfluencers are forging any kind of a contract. It can then become easy to regulate them. Sebi’s main intent here is to prevent mis-selling and stock price manipulation,” the official added.

There might be certain challenges to achieving this, though.

“Influencers are not charging a fee from individuals or entering into contracts for investment advices that people receive from them. Therefore, they should not be liable under the investment advisory regulations,” says Pranjal Kamra, a financial influencer and CEO of Finology Ventures, adding, “Influencers can promote platforms, but I’m not of the opinion that one should be allowed to recommend stocks.”

Matter of disclosure

While there are no specific regulations from Sebi that address financial influencers, the Advertising Standard Council of India (ASCI), a voluntary, self-regulatory organisation, prescribes that upfront and prominent disclosures must be made by influencers on brand collaborations, advertisements, paid partnership or sponsorships for all such posts on all platforms. It also directs influencers to follow due diligence.

Data shared by ASCI showed that there has been some decline in violations by financial influencers, specifically with regards to promotional content on crypto-assets. In the financial year 2021-22, there were a total 415 instances of violations by influencers and celebrities in finance- and cryptocurrency-related content. Of this, 43 were finance related, while 372 were connected to cryptocurrency promotional content. In the first half of the current financial year, ASCI has observed a total of 71 violations in such cases – 15 being finance related, while 56 were on cryptocurrencies.

Earlier this year Australian securities market regulator, the Australian Securities and Investments Commission, announced imprisonment and financial penalties on breaches by social media influencers and for those not holding a licence to do so. Regulators in China and Singapore have also imposed restrictions on promotion of cryptocurrency-related products and issued guidelines for finfluencers.

Defining finfluencers

Legal experts have called for clear definitions of finfluencers and licencing or registration to bring in accountability.

“Financial influencers/Finfluencers are neither defined under any statute nor there are any regulations governing them. The Intermediary Guidelines as they exist today do not sufficiently address the concerns,” said Akhil Anand, partner, DSK Legal. “Sebi has wide powers under the Act. However, the existing guidelines are limited and not adequate to safeguard the interest of the investors. In addition, proceedings may also be initiated under the Indian Penal Code. Considering the interest of the investors ought to be safeguarded, it is important that appropriate regulations are framed,” he added.

Some legal experts also expect clearer regulations governing influencers in a new law, the Digital India Act, which the government is looking to introduce.

Finfluencers, meanwhile, have raised concerns on barriers the compulsion of registration might bring along, advocating that they are functioning on the agenda of financial literacy.

“For influencers indulging only in personal finance advice, a mandate for RIA licence or research analyst registration will destroy a major section of the industry, since it has high barriers to entry not relevant for personal finance,” said Sharan Hegde, a financial influencer. “There are certain criteria, varying from work experience to educational qualifications, to get these certifications, which will be a hindrance. Sometimes people who have such licences do not know how to create content, and those with the knowledge of creating content mostly don’t have a licence. So basically, such strict guidelines, if implemented, will only hinder financial literacy,” Hegde added.

On being asked about the accountability for content in the promotion of investment platforms, Hegde said, “We do our due diligence. However, the influencer should not be punished for something that a platform fails on in the future since we cannot predict what the founder will do behind closed doors.”

Ankur Warikoo, a YouTuber and entrepreneur, said, “There should be skin in the game for influencers, too, as in they should themselves be users of a platform they are promoting. Moreover, anybody speaking about what governs people’s money should be qualified to do so.”

On the matter of certification, he added, “I don’t think a certification serves the purpose as it then becomes a licence to kill. Financial advisors certified by Sebi can still go about giving wrong advice and not bear its consequences.”

Reigning in influencers

* Australian Securities and Investments Commission has announced imprisonment and fines on breaches by social media influencers and for those not holding a licence to do so

* Regulators in China and Singapore have imposed restrictions on promotion of cryptocurrency-related products and issued guidelines for finfluencers