Finfluencers come under SEBI pressure

The Securities and Exchange Board of India (SEBI), the markets regulator, recently released a consultation paper to clamp down on financial influencers, also known as finfluencers.

Finfluencers, who use social media platforms like Instagram, Facebook, YouTube and X (formerly Twitter) to offer advice and insights on various financial topics, have come under SEBI's scrutiny in recent months for wielding enormous clout among their followers and the potential consequence of misleading them.

Some of the proposed regulatory measures laid down by SEBI are as follows:

• Finfluencers must display their SEBI registration details.
  
• Prevent any form of association between SEBI-registered entities and unregistered finfluencers.
  
• Prevent payment of referral-based commissions to unregistered finfluencers.
  
• Registered entities should take active measures to dissociate themselves from any unregistered entity using their name.

The problem with unregistered finfluencers

SEBI's concern is rooted in the fact that many of these finfluencers are not registered or regulated, yet have significant influence over the financial decisions of their followers.
The consultation paper highlights that while some finfluencers may be genuine financial educators, many are unregistered and act as unauthorised investment advisors or research analysts.

These unregulated finfluencers can be misleading and might even be paid undisclosed compensation for promoting certain financial products or services, thereby potentially putting the financial well-being of their followers at risk.

The business model

Finfluencers commonly attract followers through engaging content on social media platforms. The SEBI paper identifies that these influencers might earn through various methods, including referral fees, non-cash benefits, or direct compensation from the platforms where they share their content.

SEBI is concerned that registered entities might be leveraging these unregulated finfluencers to promote their products and services.

The way forward

By releasing this consultation paper, SEBI has taken an initial step towards bringing transparency and accountability to the fast-growing field of financial influencers.

The public has been invited to offer feedback on these proposals, and it will be interesting to see the final regulations that emerge from this consultative process.

It's a move aimed at protecting investors' interests and ensuring the ethical integrity of the financial advice provided by the finfluencers remains watertight.

Also read: Making finfluencing easier