SEBI to put regulations on use of ‘financial influencers’

With users having access to platforms like YouTube, Twitter and Instagram, these days it has become a piece of cake to find financial knowledge online.

A new term like ‘Instagram influencer’ has emerged for finance too as ‘financial influencer’. Financial influencer is a term to define people who educate the masses about financial topics like stock market, mutual funds, equity market etc.

India’s market regulator, SEBI to direct brokers and mutual funds to minimise the usage of financial influencers in advertising and markerting campaigns, a source with direct knowledge of the matter told.

Rapid increase in retail investors in equity markets during the Covid-19 pandemic, resulted in multiplication of influencers pushing financial advice on social media platforms.

The Securities and Exchange Board of India (SEBI) worries about chances that financial influencers could mislead investors, as per people asking to be anonymous.

However, market regulator SEBI has chose not to speak on the matter yet.

The regulatory body will ask brokers and traders registered under it along with mutual funds to cease associating itself with financial influencers who can be seen handing out false or misleading advice and convincing investors, said the first person, a senior regulatory official.

SEBI after issuing a consultation paper and seeking industry comments, will then characterise what kind of advice is taken as misleading. It will then finalise the necessary regulations, the person added, with rule violations it could attract fines with ban from capital markets.

Solution to the problem

SEBI, on the other front, believes that controlling financial influencers is beyond its jurisdiction and the center of attention should be the reduction in legitimacy they get from being backed by registered market intermediaries through ads, events and other associations, the first person said.

Sandeep Parekh, managing partner at FinSec Law Advisors, a law firm in India said, “There is heavy regulatory and compliance burden on registered entities, whereas the unregistered individuals are continuing to give out financial advise with impunity,” he said. “There is a need to have targeted regulations for so-called financial influencers.”