The Securities and Exchange Board of India (SEBI), the market regulator, has taken a significant step by releasing a consultation paper on the association of registered intermediaries with ‘finfluencers‘ or digital and social media influencers operating in the realm of financial literacy and business. With the rise of finfluencers across platforms like YouTube, Instagram, and Twitter, this move aims to address potential concerns arising from their growing influence on consumers’ financial decisions.
Defining the Scope
The consultation paper zeroes in on unregistered entities or finfluencers who, while wielding their digital presence, entice their followers to purchase products, services, or securities in exchange for undisclosed compensation from various platforms, producers, or products. For instance, an influencer might encourage users to invest in a specific mutual fund without revealing that they have received a marketing fee from the fund house.
Finfluencers, as defined in the paper, are individuals who provide insights on diverse financial subjects—ranging from investing in securities to personal finance, banking products, insurance, and real estate investments—via social media platforms such as Instagram, Facebook, YouTube, LinkedIn, and Twitter.
The activities of finfluencers often intersect with areas regulated by financial sector regulators, including SEBI, RBI, PFRDA, and IRDA. Due to their unregistered status, these influencers are not bound by the market regulator’s code of conduct. Consequently, the paper advocates for the disclosure of potential conflicts of interest, including any association with or material interest in the products, services, or securities they endorse.
The consultation paper highlights instances where SEBI registered intermediaries or regulated entities may rely on unregistered influencers for product and service promotions.
Disrupting Revenue Models
The proposed regulations could potentially disrupt the revenue models of influencers by requiring them to make disclosures to their followers. This aims to mitigate the perverse incentives that might arise within the ecosystem. SEBI also asserts its intention to take action against unregistered finfluencers who breach the proposed regulations.
SEBI clarifies that registered intermediaries, regulated by SEBI, stock exchanges, or AMFI, are prohibited from sharing confidential client information with unregistered entities.
Enhanced Transparency and Adherence
Finfluencers registered with SEBI, stock exchanges, or AMFI are expected to display their registration numbers, contact details, investor grievance redressal helpline, and appropriate disclosures and disclaimers in their posts. They are also required to adhere to the code of conduct outlined in their relevant registration terms. The paper emphasizes compliance with advertisement guidelines issued by SEBI, stock exchanges, and SEBI-recognized supervisory bodies.
Public Participation and Timeline
The consultation paper invites public comments on its proposals, which can be submitted until September 15. This move signifies SEBI’s commitment to fostering transparency, protecting investors’ interests, and addressing the evolving landscape of digital finance.
Disclaimer: The information provided here is for educational purposes only and should not be considered financial advice. Always conduct thorough research and consider consulting a financial professional before engaging in algorithmic trading.