Why is SEBI tightening norms for ‘FinFluencers’? | Explained Premium

How is the Securities and Exchange Board of India proposing to regulate finfluencers- unregistered influencers doling out financial advice? We explore.

The story so far: On August 25, markets regulator Securities and Exchange Board of India (SEBI) floated a consultation paper proposing regulations to restrict the association of SEBI-registered intermediaries or regulated entities with unregistered ‘finfluencers.’ Other than undertaking enforcement action against the unregistered ‘finfluencers,’ the paper proposed measures to “disrupt the revenue model for such finfluencers, so that the perverse incentives in the ecosystem reduce.” Comments to the proposal are invited until Sept 15.  

The markets regulator has defined financial influencers, commonly referred to as ‘finfluencers’, as people who provide information or advice to people on various financial topics such as investing in securities, personal finance, banking products, insurance, or real-estate investment. Present on varied social and digital platforms, the regulator notes, finfluencers “have the ability to influence the financial decisions of their followers”.  

Their objective may be to entice their followers to purchase products, services, or securities in return for undisclosed compensation from platforms or producers. 

Finfluencers are usually unregistered entities and differentiate themselves with their engaging and catchy content via stories, reels, posts and messages on varied social media platforms. SEBI notes that while some of them may be genuine educators, “many of them are effectively unregistered and unauthorised Investment Advisers (IAs) or Research Analysts (RAs).”

Finfluencers not registered with relevant financial sector regulators may not possess the requisite qualifications or expertise on the subject. Further, not beingsubjected to a formal code of conduct translates to not requiring to disclose any potential conflict of interest— such as their association or interest in the products, services or securities that they promote.  

SEBI has floated a separate consultation paper that proposes a unique fee payment platform for registered IAs and RAs. The idea is to help investors identify and avoid unregistered entities/influencers.  

This conundrum is however not new to SEBI or any other market regulator globally. In May, SEBI fined options trader and Youtuber P.R. Sundar Rs 6.5 crore alongside a one-year ban for violating norms pertaining to investment advisers. He was allegedly offering varied packages for advisory services through his website. The fees collected were deposited with banks accounts related to Mansun Consultancy; the Youtuber was a promoter of the company with 50% shareholding. The case was disposed of after he agreed to pay the fine, althoughthe terms of the ban still applied.