With the expansion of the digital age, the perspective towards stocks and securities is again being seen as a means to get rich quick by the common man and an increasing number of retail investors are turning to social media influencers instead of seeking advice from Securities Exchange Board of India (hereinafter referred to as “SEBI”) registered financial advisors as a means to enhance their investment returns. Such digital finance and investing gurus have become so widespread to acquire an eponymous name of their own called – “Fin-fluencers.”
In light of the rising popularity and the significant influence these Finfluencers wield SEBI has come out with a consultation paper namely “Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers)” on 25.08.2023.
These Fin-fluencers are individuals who utilize their reach on social networking and other online platforms to disseminate financial counsel, suggestions, and trading insights to their followers. They typically utilize platforms such as Instagram, Twitter, YouTube and blogs to generate and share content related to finance and investment.
According to the 2019 Financial Literacy and Inclusion survey conducted by the National Centre for Financial Education, India’s financial literacy rate is alarmingly low, at just 27 percent. Financial influencers, who lack both licenses and qualifications to dispense financial guidance, have created new avenues for promoting financial literacy. Therefore while many Finfluencers are dedicated to producing discretional educational content for their followers, others have raised suspicions due to their involvement in stock manipulation and their endorsement of particular products and companies for personal gain, potentially causing harm to the public.
FINFLUENCERS BUSINESS MODEL
Finfluencers that are based on social networking or social media platforms might encourage their clients to access their products or services in exchange for:
EXISTING REGULATORY FRAMEWORK
Fin-fluencers are generally required to comply with standard regulations such as Section 12-A of the SEBI Act, 1992, and regulation 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations“).
While the SEBI (Investment Advisors) Regulations, 2013, (hereinafter referred to as “IA Regulations”) oversee Registered Investment Advisers (hereinafter referred to as “RIAs”) in India, they do not include finfluencers in their ambit. The IA Regulations define an “investment adviser” as someone who provides investment advice “for consideration” to individuals or groups. Finfluencers typically offer advice freely to the public without charging their viewers, which places them outside the definition of an “investment adviser” since there is no consideration involved. However, there is still no specific law governing fin-fluencers.
SEBI’s PROPOSED REGULATIONS FOR FINFLUENCERS
In SEBI’s consultation paper the supervisory body outlined several crucial points that it proposes to put in place to regulate fin-fluencers. The important ones of these being:
Despite the wide-ranging freedoms it offers, social media is evolving into a platform where misinformation spreads, and finfluencers wield substantial influence over their audiences, especially in critical financial sectors, thereby increasing the potential risks of scams and financial losses. In regards to seamless cross-border communication and investments, SEBI may need to collaborate with international regulatory bodies to address influencers with global reach. SEBI’s proposed regulation of financial influencers represents a crucial move towards upholding the transparency and integrity of financial markets. Nevertheless, as financial influencers continue to gain significance in shaping investment choices and market dynamics, SEBI is likely to face several future challenges.
Team AMLEGALS assisted by – Mr. Bhavy Sharma (Intern)
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