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Finfluencers — SEBI’s rap on the knuckles will not do

While strict regulations of those who advise investors is a good thing, more checks and balances must be brought in on unregistered finfluencers who may neither have relevant qualifications nor competence
Last Updated 22 February 2024, 05:23 IST

The Securities and Exchange Board of India (SEBI)’s stance on finfluencers is confusing, to say the least.

A finfluencer is someone who can influence the decisions of investors by their advice and ‘education’, usually done through digital platforms such as YouTube, Instagram, and Telegram, among others, to invest in securities which they suggest. Some finfluencers charge a fee for subscription to their channels through which fundamentals of investing are explained, or investment advice is given, or some even brazenly give tips on what to buy/sell — which is a violation of the law if they are not SEBI registered.

The problem is exacerbated because there are too many fraudsters posing as ‘financial experts’, recommend dubious investment opportunities in which they either profit from the entity in which the investment is made, or trade in the opposite direction and make profits while their followers make losses.

Currently, SEBI does not have comprehensive powers or even resources to regulate finfluencers across platforms. That said, from time to time, based on complaints or its own intelligence and data gathering, SEBI is able to nab wrongdoers. This needs to change — from catching a few to only a few escaping.

The SEBI needs to take a tougher stance on finfluencers. In a February 8 interim order given by SEBI in an investigation concerning ‘guest experts’ who appeared in Zee Businessthe order read: “There are many experts who are spreading financial literacy in India and empowering investors to take their own decision. Most of the experts fall in this category and are doing a very good job which has resulted in robust securities market that we have today. However, the same cannot be said about a few other experts who take advantage of their mass following to make unfair profits by misguiding innocent investors.”

There are regulations relating to the registration of research analysts. They require persons seeking to give investment advice to first register with SEBI. Then there are investment advisers who give customised advice to clients. There are other categories too. These persons are required to have minimum qualifications and also to be certified by the National Institute of Securitas Markets (NISM). A one-time or regular fee is to be paid to SEBI for remaining certified. Given this, SEBI could have sent a stronger message to unregistered finfluencers who are exploiting the loopholes in the SEBI Regulations. An impression that some transgressions can be overlooked (or are even praiseworthy) could have been avoided. 

The proliferation and success of unregistered finfluencers along with almost stifling regulatory requirements for registered entities has resulted in a very low number of registered investment advisers and entities. While strict regulations of those who advise investors is a good thing, more checks and balances must be brought in on unregistered finfluencers who may neither have relevant qualifications nor the competence to give sound advice or education.

 How does one resolve this issue? A good starting point is to require all finfluencers who have a following of 5,000 and above to register their details with SEBI. The details must include educational qualifications, which must be made readily available to help the public make an informed choice. Stringent norms will reduce the number of fraudsters who are out to make a quick buck at the expense of the retail investor. At a time when investor participation in India’s stock market is steadily rising, it is important that the gatekeeping is improved.

 SEBI, in the same order mentioned above, advised investors to “exercise due diligence while listening to such experts on TV or on social media”. This should not result in a caveat emptor (buyer beware) type of situation. The capital market must be as safe for investors as possible, particularly the small/retail ones. India has seen too many scams where the regulators ignore the rapid developments and by the time they woke up, tens of thousands of crores of rupees of the small/retail investor was lost.

A holistic and early study of this field of finfluencers by an expert committee of SEBI followed by quick implementation of their recommendations is urgently needed.

(Jayant Thakur is a chartered accountant.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.

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(Published 22 February 2024, 05:23 IST)

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