A Comprehensive Overview Of The Proposed Clampdown On Fin Influencers

Aviral Singh & P. Shreepati

29 Feb 2024 4:50 AM GMT

  • A Comprehensive Overview Of The Proposed Clampdown On Fin Influencers
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    The Securities Exchange Board of India released a “Consultation Paper on Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers)”, the objective of the same being to seek comments from the public. The SEBI with this paper seeks to regulate the Finfluencers which are usually unregistered.

    An influencer is a person who has the access and power to attract people and can influence other people's decisions. Furthermore, Finfluencers or Financial influencers are people who generally provide information and try to influence people regarding their financial decisions with the help of social media platforms. They provide information and/or advice on various financial topics such as trading, investing, etc, and deal with information related to SEBI, the Reserve Bank of India (RBI), the Insurance Regulatory and Development Authority of India (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA).

    Financial influencers often use catchy taglines and cherry posts about companies, products, and services to attract prospective investors and are successful in doing so. However, these influencers may or may not have the requisite knowledge to advise and suggest people regarding their investments. These individuals are generally unregistered and are not regulated by any legislation or statute. Financial influencers also engage in brand associations to promote the products and services of entities in exchange for monetary or non-monetary benefits.

    The Securities Exchange Board of India, which is a regulatory body for securities and commodity markets in India, released the consultation paper on 25th August 2023 due to the recent cases of influencers trying to induce small investors and charging hefty amounts as commission. Last year SEBI fined a popular influencer, Rs6.5 crore for peddling “investment advice” under the guise of education. The concerned person attracted thousands of people by showcasing various luxuries that he earned through his so-called trading techniques.

    SEBI took a crackdown on these Finfluencers, by placing restrictions on brokers and various mutual funds from using the products and services promoted by these unregistered Finfluencers. From SEBI's point of view, the nature of advice given by these individuals is not only harmful but also illegal as most of them are unregistered. SEBI through the consultation paper has directed the registered intermediaries to take appropriate action and disassociate themselves from any unregistered entity. Appropriate action may also include filing a criminal case under section 420 of the Indian Penal Code, 1860, for impersonation and fraud, etc.

    The board has also proposed to create an authority that will further develop an online portal to oversee the payments from clients to registered Research Analysts (RA's) and Investment Advisors (IA's) defined under Reg. 2(1)(u) of the SEBI (Research Analysts) Regulations, 2014 ('RA Regulations') and Reg. 2(1)(m) of the SEBI (Investment Advisors) Regulations, 2013 ('IA Regulations') respectively. The proposed authority will help bring more credibility and remove unaccounted payments taken by Finfluencers. These influencers now also need to fully adhere to the code of conduct under their relevant registration as per SEBI's consultation paper.

    Way forward

    As the regulatory authority is tightening its grip by placing various restrictions and proposing changes regarding these financial influencers, there still is a scope for development. SEBI is not only required to put in more stringent measures due to its record of lack of actions against the defaulters, but it also needs to mention specific penalties for any breach done by these finfluencers. A different payment platform for Research Analysts and Investment Advisors would help the body separate the unauthorized payments. It also needs to develop a mechanism to oversee individuals who are not complying with the directions. These clampdowns can stifle and limit innovation but would help safeguard investors, for which the agency needs to strike a proper balance between the two.

    The Authors Are Students at USLS, GGSIPU. Views Are Personal.

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