Given the increasing number of unregistered financial influencers, commonly known as “finfluencers”, the Securities and Exchange Board of India (SEBI) seeks to curb the association of registered intermediaries and regulated entities with such influencers to safeguard investors from any material risks and losses.
The capital market regulator has been talking about finfluencers and the potential risks they pose by intervening in the investment decisions of investors at various forums.
So let’s understand a bit more about “finfluencers” and the regulations proposed by SEBI to mitigate their influence on Dalal Street investors.
Who are Finfluencers?
As per the ‘Guidelines for Influencer Advertising in Digital Media’ released by the Advertising Standards Council of India, an ‘influencer’ means someone who can affect
such audiences who purchase decisions or opinions about a product, service, brand,etc. because of the influencer’s knowledge, position, or relationship with the audience.
In recent times, the activities of finfluencers have attracted wide public and media attention.
Finfluencers have attracted wide attention from investors through their stories, messages and videos on various social media platforms such as Instagram, Facebook, YouTube, LinkedIn, Twitter, etc.
However, many of these are not registered with SEBI or any other regulated entity and don’t have the license to promote products or offer investment advice to investors.
Finfluencers Business Model
Several finfluencers, through various social media platforms, have been directly or indirectly promoting products, giving stock recommendations, in return for some fee.
They charge a referral fee for usage of the product, channel, platform, or services that they advertise, and the commission may be in an upfront or trail manner.
Some also offer non-cash benefits such as free usage of their products or services.
A few of the finfluencers receive compensation directly from social media or other platforms where they share their content, or they share the profit with the underlying
product, channel, platform, or services.
Need for Regulation
Amid growing cases of fraud and misplaced advice is given by finfluencers, SEBI felt the need to crack down on entities selling crorepati dreams to retail investors.
It’s not the investment advisory provided by some of the finfluencers that is bothering SEBI, but it’s the expectations that they set on market returns, Zerodha founder Nithin Kamath, had said recently.
Kamath is part of three advisory committees at SEBI and is keen on resolving the issues around finfluencers.
Recent Instances
In May, SEBI barred well-known YouTube finfluencer P R Sundar, from trading in the market for a year and orderedhim and his firm Mansun Consulting to pay settlement and disgorgement fees for violating investment advisor regulations.
Sundar, who runs a website www.prsundar.blogspot.com, was offering various packages for providing advisory services without being registered, and SEBI had received various
complaints about it.
Sundar later settled the case by returning the advisory fee and disgorging over Rs 6 crore.
Proposed Regulation
SEBI seeks to limit the association of registered intermediaries or regulated entities with unregistered entities, and has proposed certain regulations in a consultation paper.
The capital market watchdog aims to disrupt the revenue model for such finfluencers, so that the perverse incentives in the ecosystem are reduced.
Neither will registered intermediaries or regulated entities directly or indirectly have any association, whether monetary or non-monetary, with such finfluencers, nor will stock exchanges or AMFI share any confidential client information with any unregistered entities.
Potential Impact
Most experts believe that the proposed regulations will encourage transparent practices in the financial markets in the long term.
New regulations could help prevent conflict of interest and recommendation bias, which usually overlooks their followers’ risk profiles, said Tejas Khoday, co-founder and CEO of discount broking firm FYERS.
Khoday, however, added that the proposed rules should harness the power of digital media to increase overall financial awareness in a fair and transparent manner without compromising the far-reaching social media penetration so far.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
