Sebi’s current focus is on finfluencers who generate income through referrals and has advised regulated entities not to engage in business dealings with them.
The Securities and Exchange Board of India (Sebi) has made efforts to regulate the social media-based influencer community, particularly those operating in the realm of financial advice.
Sebi has extended an invitation to ‘finfluencers,’ referring to social media influencers who provide financial advice and information to their followers, to undergo regulation and continue working with Sebi-registered entities.
While some view this as a positive step in the right direction, concerns have been raised about its effectiveness in curbing fraudulent activities prevalent in the online world.
Among the influencers in the financial space. there are those who claim significant trading profits and promise to teach their strategies to followers through expensive courses. Some influencers use platforms like Instagram and YouTube to provide trading tips or endorse products in exchange for commissions. It is this category that Sebi’s recent regulations are expected to affect the most. Also, there are content creators who produce engaging content on financial products to earn money through social media channels.
One of the most significant concerns revolves around influencers who lure aspiring traders into their courses by making false claims about their own trading successes. These individuals often operate independently and do not rely on regulated entities for their revenue, making them challenging to regulate through market guidelines.
The offline space
In the offline space, authorised persons (APs) have long been active intermediaries connecting stockbrokers with traders. APs earn money through referrals and, in some cases, based on customer trading activities, particularly high-volume futures and options (F&O) trading. This segment contributes significantly to brokers’ overall revenue, with over 70% of their income often derived from high-volume traders.
While some brokers have chosen not to engage in this model due to concerns about potential negative impacts on customers, many attribute the recent surge in Indian stock market participation to influencers in this community. They have played a role in expanding the market by creating engaging content.
Lucrative market
The influencer market is substantial, with varying estimates of its size. Influencers can earn substantial incomes through referrals and affiliate income, sometimes receiving up to 70% of the brokerage fees generated through their referrals. Additionally, charges for creating promotional content vary based on engagement levels and the size of the influencer’s follower base.
In the peak of 2020-21, platforms from crypto startups to fintechs allocated a significant portion of their marketing budgets to influencer marketing, but industry insiders suggest that these budgets have been reduced by more than 50% and are expected to decrease further due to regulatory actions.
