Sebi Board Approve Norms For Finfluencers

Recently, Capital markets regulator Sebi approved norms to regulate unregistered financial influencers, also referred as finfluencers.

• These influencers often operate on a commission-based model.

What are Finfluencers?

• Finfluencers are people with public social media platforms offering advice and sharing personal experiences about money and investment in stocks. 
• Their videos cover budgeting, investing, property buying, cryptocurrency advice and financial trend tracking.

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What’s the Issue?

• Indian stock market is booming: A surge in retail investors’ participation in equity markets during the pandemic has led to a rise in so-called influencers pushing financial advice via social media platforms.
  • According to SEBI data, India had 154 million trading accounts as of April 2024
    • This is a more than four times jump from the 36 million trading accounts in April 2019.
• Potential to influence a large number of people: This is increasing the popularity of so-called financial influencers who advise on stocks and other related investments through their channels on YouTube and Instagram. 
• • Some of these influencers have lakhs of followers with their investment advice being closely followed by millions of people across the country.

The Guidelines for Financial Influencers

Following are the Guidelines for Financial Influencers released by SEBI:

1. Norms on Financial Influencers
   • It will be the responsibility of the regulated entity to ensure individuals with whom it is associated do not breach the rules of conduct set by SEBI. 
   • These guidelines stipulate avoiding the promise of assured returns.
   • Under the new rules, brokers and mutual funds are prohibited from using the services of unregulated financial influencers for marketing and advertising campaigns.
   • Exemption: Financial influencers engaged in investor education will be exempted from the new restrictions.
2. Eased Delisting Rules
   • Changes to delisting rules: This would make it easier for companies to exit from stock exchanges. 
     • Currently, delisting is carried out via reverse book-building.
     • Companies can now offer shareholders fixed prices for shares as an alternative mechanism to delist from stock exchanges.
3. Derivative Trading Regulations
   • New criteria introduced: To decide on stocks that can be linked to derivative products, such as futures and options. 
     • With the adoption of these guidelines, the total number of stocks eligible for derivative trading will rise marginally.

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Risk Associated With Finfluencers

The practices associated with finfluencers poses various impacts, few are mentioned below:

• Unregistered And Unauthorised: SEBI notes that while some of them may be genuine educators, “many of them are effectively unregistered and unauthorised Investment Advisers (IAs) or Research Analysts (RAs).”
  • The number of ‘unregistered’ investment advisors giving unsolicited ‘stock’ tips on social media platforms has increased dramatically.
• Unethical Practices: If there is any kind of monetary transaction that happens between them and the entity they are promoting.
• Lack Knowledge or Expertise: Finfluencers not registered with relevant financial sector regulators may not possess the requisite qualifications or expertise on the subject. 
• Definitions Clarity: Definition of Finfluencers should be clear, stand test of judicial – regulatory scrutiny. 
  • Should cover all mediums that have consumer access for financial – investment communication. 
  • Content definition : It should cover all forms of content – right from advertisements, brochures, data put up on websites or social media, endorsements by celebrities or brand ambassadors, news programs in mainstream media that promote any specific view about a financial investment
• Price Manipulation: In addition, certain companies used social media platforms to boost their share prices through finfluencers.
• ASCI’s Guidelines violated: The Advertising Standards Council of India (ASCI) has issued guidelines for social media influencers and advertisers regarding virtual digital assets (VDAs), including cryptocurrencies and non-fungible tokens (NFTs).
  • Non-Compliance: ASCI’s recent half-yearly report highlighted cases of non-compliance by social media influencers with advertising guidelines.
• Celebrity endorsements: A prominent Bollywood actor violated ASCI’s Guidelines guidelines who posted an ad about ‘Beyond Life NFT’.

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