In a bid to curb the proliferation of unregistered financial influencers, the Securities and Exchange Board of India (SEBI) is set to finalize a draft discussion paper within the next couple of months. The paper aims to establish rules and guidelines to regulate the activities of these "finfluencers" who offer investment advice to the public, often through social media advertising and marketing campaigns.

 

The move by SEBI comes on the heels of the income tax department sending notices to top social media influencers for alleged tax evasion, as well as recent searches conducted on prominent YouTubers in Kerala for similar offenses. SEBI Chairperson Madhabi Puri Buch stated that the discussion paper will soon be ready for public comments, signaling the regulator's intention to address the issue of unsolicited investment advice being provided by unregistered individuals.

 

While SEBI acknowledges that educating investors about the market and investments is acceptable, the concern arises when unregistered individuals offer unsolicited investment advice without proper authorization. The market has witnessed a surge in the number of unregistered finfluencers who manipulate the market and earn substantial commissions from platforms while potentially engaging in fraudulent practices.

 

Social media platforms like YouTube, Instagram, Telegram, WhatsApp, and Twitter have become breeding grounds for such individuals, prompting SEBI to caution the public against falling into their advisory traps. The regulator has been considering introducing regulations to restrict their activities and ensure investor protection. The aim is to seek inputs from market participants and stakeholders through the discussion paper and subsequently issue guidelines to rein in these finfluencers.

Recently an advertisement which said "Trust only the real experts." published on the Economic times front page featuring a finfluencers faced strong backlash on twitter as it contained logos of MeitY and India G20 besides YouTube. We have covered the full story in detail here.

 

SEBI has also been grappling with the issue of unregistered investment advisors, who pose significant risks to unsuspecting investors. Some registered advisors have even misused their SEBI registrations, exacerbating the problem. Additionally, the rise of application-based content on social media, where popular influencers endorse specific asset classes without proper licenses or expertise, has further underscored the need for guidelines in this area.

 

Previously, SEBI had taken action against WhatsApp groups and Telegram channels involved in leaking market-moving data, leading to changes in earnings press conferences and media interactions by large companies. Now, SEBI plans to direct brokers and mutual funds to limit the use of financial influencers in their social media advertising and marketing campaigns to curb the spread of unsolicited financial advice.

 

While SEBI has been vocal about the need for regulations regarding financial influencers since January 2022, it has yet to issue comprehensive guidelines. However, the regulator has been selectively addressing cases of market abuse and manipulation. Notably, SEBI cracked down on Youtubers in March 2023, barring approximately 44 entities from the securities market for illicit gains through price manipulation. More recently, a finfluencer named PR Sundar was fined Rs 6.5 crore and banned from the market for one year for alleged violations of investment adviser norms, marking the first regulatory action taken against a financial influencer.

 

SEBI's efforts to regulate financial influencers align with the concerns raised by Finance Minister Nirmala Sitharaman, who warned about the risks associated with Ponzi apps offering financial solutions. The Advertising Standards Council has also established guidelines for influencers who have the power to influence purchasing and investment decisions.

 

With the impending draft discussion paper, SEBI aims to address the challenges posed by unregistered financial influencers and establish robust regulations to protect investors from potential fraudulent activities in the financial space.