Hey everyone! Do you know those cool finance folks on Instagram and YouTube who give investment tips and talk about making big money? Well, they may be getting regulated by the market regulator Securities and Exchange Board of India soon!

The Securities and Exchange Board of India (SEBI), the big boss of stock markets in India, is thinking about setting up some rules to follow and guidelines for these finance influencers, or “finfluencers” as they’re called.

“The Securities and Exchange Board of India (SEBI) is contemplating guidelines to rein in finfluencers’ activities,” SEBI chairperson Madhabi Puri Buch said on March 11 at an event in Mumbai.

How to Define ‘Finfluencers’

Industry experts are of the view that this move will bring transparency and accountability in the financial services space, but it would be tough for the regulatory body to define the term ‘finfluencers’ as per guidelines.

“SEBI might face several problems in defining the scope of a ‘finfluencer’ and the nature of financial advice. Additionally, proving intent to mislead can be complex,” Rest The Case Founder Shreya Sharma told StartupTalky.

Sharma heads an online platform, Rest The Case, that acts as a legal aggregator, providing seamless connections between lawyers and clients. The platform makes legal services accessible to all with just a click.

“Potential challenges that may arise are jurisdictional issues in cases of international influencers, maintaining privacy and freedom of speech while ensuring compliance, and interpretation of content standards prescribed by SEBI,” Sharma, a lawyer by profession, said on the query the legal challenges that SEBI may encounter in enforcing regulations on finfluencers.

With a growing number of internet users and investors, financial influencers are becoming super popular and influencing a lot of people’s money decisions. But sometimes, they might not give the best advice, and that could be risky for your savings!

“The real problem is in defining the ‘fininfluencers’ and monitoring them. Today, any citizen has the fundamental right to speech and expression and to share their views publicly on any social media platform subject to just restrictions.

“There are leading individuals who give interviews and explain their logic on markets/budget/finance and market-related issues which touch the lives and hearts of many individual investors. There are many organized and random players who regularly share updates through videos, chats, and blogs,” SNG & Partners Managing Partner Rajesh Narain Gupta told StartupTalky.

What These Guidelines May Include?

Be Honest: Finfluencers might have to tell the masses if they’re getting paid to promote something or if they have any connections to the products they’re talking about. That way, the public knows if they’re just trying to sell stuff or if they’re giving genuine advice.

Follow the Rules: Just like professionals in finance have to follow certain rules, finfluencers might have to too! This means they need to play fair and not mislead people with fake promises or shady deals.

Keep it Real: SEBI might want finfluencers to be more careful with what they say. No more wild claims or hyping up things that aren’t true. They need to be straight about the risks and rewards of investing.

Teach People: Instead of just showing off their success stories, finfluencers might have to focus more on educating people about money matters. That means helping everyone understand how investments work and how to make smart choices with cash.

As per experts, SEBI can consider different approaches to ensure the effective enforcement of the guidelines.

• Technology-driven monitoring: Utilize data analytics to track online activity and identify potential violations.
• Surprise audits: Conduct regular audits of SEBI-registered entities to ensure adherence to the regulations regarding influencer partnerships.
• Investor grievance redressal: Establish a strong system for investors to report misleading information from finfluencers.

But Wait, Why Is This Such a Big Deal?

“There are still many who are not associated with any regulated entity but still in their own rights are heavy lifters and a word from them influences millions. The regulator (SEBI) has to intelligently qualify who the impacted ‘Fininfluencers’ will be and how the restrictions will not fall in the mischief of the right to speech and expression in a democratic country. Whether there is enough existing infrastructure to adjudicate and punish the wrong doer is another big issue,” SNG & Partners’ Gupta said.

Gupta is an independent director on the boards of HDFC Capital Advisors Limited, HDFC Credila Financial Services Limited, and J.C. Flowers Asset Reconstruction Private Limited.

Advocating on similar lines, Sharma said that SEBI must collaborate closely with legal experts to address these challenges proactively and develop comprehensive strategies that uphold regulatory objectives while respecting constitutional rights.

Public Comments

In August last year, SEBI floated a consultation paper for stakeholders’ discussion in this regard to protect investors from potential risks posed by unregistered financial influencers.

SEBI had opened the floor for public comments on its proposal to limit the association of SEBI-registered intermediaries with unregistered finfluencers.

The objective is to gather feedback on proposed restrictions, aiming to maintain market integrity and minimize risk.

In the consultation paper, SEBI proposed stringent measures aimed at curbing ‘finfluencers’ association with registered intermediaries and regulated entities.

Background: The Rise of Finfluencers

The proliferation of financial influencers, or ‘finfluencers’, has garnered significant attention in recent times. While some provide genuine education, many operate without proper registration or authorization as investment advisers or research analysts.

As per the market regulator, only the registered ones would be eligible to post advice on the stock market on social media. This move could benefit traders and investors to identify eligible advisors and analysts.

Finfluencers often attract investors/prospective investors through their engaging stories, messages, reels, and videos on various social media platforms such as  Instagram, Facebook, YouTube, LinkedIn, Twitter now X, the consultation paper said.

“Finfluencers registered with SEBI or stock exchanges or (Association of Mutual Funds in India) AMFI in any capacity shall display their appropriate registration number,  contact details, investor grievance redressal helpline, and make appropriate disclosure and disclaimer on any posts,” SEBI said.

Limiting Association: SEBI’s Proposed Measures

SEBI’s proposal included strict limitations on the association between registered intermediaries and unregistered finfluencers. It proposed to prohibit any form of association, monetary or non-monetary, for the promotion of services/products.

Additionally, entities must refrain from sharing confidential client information with unregistered parties and ensure compliance with advertisement guidelines.

As per the  ‘Guidelines for Influencer Advertising in Digital Media’ released by the Advertising Standards Council of India, ‘influencer’ means “someone having access to an audience and power to affect such audiences’ purchasing decisions or opinions about a product, service, brand or experience, because of the influencer’s authority, knowledge, position, or relationship with their audience.”

Challenges

There are tons of finfluencers out there, and making sure they all play by the same rules could be a challenge. But if it means people can trust the advice they’re getting online, it’s worth a shot!

Of course, getting everyone to follow these rules won’t be easy. Despite having registered numbers it would be tough to identify the authenticity of the number being shown on the post.

SEBI needs to enlighten people and make them aware of the risks associated with the financial markets.

As per the legal expert, Sharma, the market watchdog, must include auditors and legal experts, who can play a crucial role in supporting SEBI-registered entities:

• Auditors and Lawyers can conduct compliance workshops to educate entities on the regulations and best practices for responsible influencer partnerships.
• They can help develop internal compliance frameworks. These frameworks will help entities establish internal processes to monitor influencer activity and manage associated risks.

Rajesh Gupta, who is an advisor to many leading Indian and foreign banks, financial institutions, real estate players, and industrial houses believes that “reasonable restrictions can be put on regulated entities to engage with fininfluencers, but, would it solve the problem is a million-dollar question. Investors’ education and training are more critical aspects as we have countless existing regulations.”

Conclusion: A Step Towards Investor Protection

Well, without rules, anyone can call themselves an online finance expert, and that can be dangerous. If people follow bad advice, they could end up losing a lot of money.

By disrupting the revenue model of unregistered finfluencers and promoting transparency, the proposed measures aim to foster a more secure investment environment.

So, let’s keep an eye out for what SEBI decides. Who knows, it might change the viewpoint about finance influencers forever!

FAQs

What are finfluencers?

Finfluencers are a distinct subset of influencers who specialize in creating content centered around financial topics, such as investing, saving, budgeting, and personal finance. They leverage their expertise and experience to provide advice, tips, and insights to their audience through various social media platforms.

What could the guidelines from SEBI include for the finfluencers?

The guidelines may include finfluencers to be honest, to follow the rules, to be real, and to teach people correctly.

What is the impact of finfluencers?

Although finfluencers have been instrumental in promoting financial literacy and encouraging investor engagement in the finance market, their operations lack regulation, thereby potentially exposing investors to risks.