Finfluencers have been making a lot of money by enticing followers

Finfluencers have been making a lot of money by enticing followers. SEBI decides to curb their income

SEBI crackdown on Finfluencers: Securities and Exchange Board of India has issued a consultation paper to curb the influence of finfluencers.

SEBI has proposed new rules for finfluencers. Representational image/Pixabay

Finfluencers have been making a lot of money by enticing their followers to purchase certain products, services or securities in return for undisclosed compensation from various platforms or producers. Soon, they will not be able to do this anymore.

The Securities and Exchange Board of India (SEBI) has issued a consultation paper to curb the influence of finfluencers.

Fixed Deposit, not Mutual Fund SIP or NPS, considered more suitable for retirement planning: Study

“While some of them may be genuine educators, many of them are effectively unregistered and unauthorised Investment Advisers (IAs) or Research Analysts(RAs),” SEBI said.

“Other unregistered entities/finfluencers may be effectively enticing their followers to purchase products, services, or securities in return for undisclosed compensationfrom platforms or producers,” it added.

With this paper, the markets regulator aims to restrict the association of SEBI registered intermediaries/regulated entities with such unregistered finfluencers, to curb the flow of such compensation.

Why is curbing the influence of finflencers important?

SEBI’s consultation paper said, “Financial influencers, commonly called ‘finfluencers’, are persons who provide information and/or advice on various financial topics such as investing in securities, personal finance, banking products, insurance, real estate investment, etc. through social/digital media platforms/channels, and have the ability to influence the financial decisions of their followers. Thus, the activities of finfluencers may deal in areas regulated by financial sector regulators such as SEBI, RBI, PFRDA, and IRDA.”

While 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, etc, they are not registered with relevant financial sector regulator and may not have the requisite qualifications or expertise on the subject.

“Worse, not being formally subject to a financial sector regulator’s code of conduct, they may not disclose any potential conflict of interest such as their association with or interest in the products, services or securities that they promote,” SEBI said.

What has SEBI proposed?

The regulator has proposed to disrupt the revenue model for finfluencers to reduce the “perverse incentives in the ecosystem”. In this regard, SEBI has made following proposals:

  • No SEBI registered intermediaries/regulated entities or their agents/representatives shall, directly or indirectly, have any association/relationship in any form, whether monetary or non-monetary, for any promotion or advertisement of their services/products, with any unregistered entities ( including finfluencers).
  • Entities registered/regulated by SEBI or stock exchanges or AMFI shall not share any confidential information of their clients with any unregistered entities.
  • Finfluencers registered with SEBI or stock exchanges or 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.
  • Finfluencers shall also fully adhere to the code of conduct under the terms of their relevant registration.
  • Finfluencers shall comply with the advertisement guidelines issued by SEBI, stock exchanges and SEBI-recognised supervisory body from time to time.
  • SEBI-registered intermediaries/regulated entities shall not pay any trailing commission based on the number of referrals as referral fee.
  • Limited referrals from retail clients, and payment of fees for such limited referrals by stockbrokers shall be allowed.
  • SEBI registered intermediaries shall take active measures to dissociate themselves from any unregistered entity using their name, product or service. They shall take necessary action to bring it to the notice of enforcement agency concerned to take appropriate action, including filing case under section 420 of the Indian Penal Code, 1860 for impersonation and fraud, etc. as may be applicable.

SEBI’s consultation paper is currently open for public comments that can be sent till Septeber 15, 2023.

Leave a Comment