Due to the increasing popularity and outreach of ‘financial influencers’/ ‘finfluencers’^[1] with the general public, the Securities and Exchange Board of India (SEBI) came out with a ‘Consultation paper on Association of SEBI Registered Intermediaries/ Regulated Entities with Unregistered Entities (including Finfluencers)’ (“Consultation Paper”) for public comments.

The Consultation Paper has inter alia flagged that whilst finfluencers deal in information pertaining to financial regulators (such as SEBI, the RBI, IRDAI, and the PFRDA), they may not always have the requisite qualification/ expertise on the subject – being unregistered, they are not even governed by the relevant regulator’s code of conduct (especially with respect to potential conflict of interest with products/ services they advertise). Given the above, the extensive social media engagement could result in their followers making investments in various products/ services without adequate guidance. Moreover, these finfluencers often seek undisclosed compensation in exchange for their information/ advice which is unregulated as of date and could lead to unfair practices.

Whilst the window for public comments has now closed and the final guidelines/ regulations are awaited, vide the Consultation Paper, SEBI proposes to inter alia:

• require ‘finfluencers’ to register with SEBI (to the extent they advise relating to the securities market) or other financial sector regulators in some capacity.
• restrict SEBI registered intermediaries (“RIs1”) or their agents/ representatives from associating with any unregistered finfluencers (whether monetarily or through non-monetary arrangements);
• restrict RIs/ entities regulated by stock exchanges or the Association of Mutual Funds in India (“AMFI”) from sharing client’s confidential information with any unregistered entity;
• require registered finfluencers to display their registration and details (such as grievance redressal helpline, contact details, etc.) as well as appropriately add disclosures/ disclaimers on their posts. Moreover, SEBI seeks to ensure that they adhere to the applicable code/ guidelines for advertisements;
• restrict RIs from paying any referral fee as a trailing commission. Only stockbrokers are permitted to pay fees for limited referrals from retail clients; and

• require RIs to notify enforcement agencies for taking appropriate action (such as filing case for impersonation and fraud).

Despite the above being in at the stage of a consultation paper, there are a few instances of SEBI already initiating prosecutions against finfluencers. For instance, in October 2023, SEBI issued an interim order cum show cause notice against a certain finfluencer who was found guilty of (i) influencing investors to deal in securities through false/ misleading information; and (ii) indulging in unregistered investment advisory activities under the garb of providing educational training.

Given that even market players are relying on finfluencers to expand their reach to investors through social media it would be interesting to watch this space for the final guidelines or regulations, whenever they are released and the overall impact they could have on all stakeholders (including persons engaging in discussions/ educational content, etc.).

^[1] Note: In the Consultation Paper, SEBI defines ‘Finfluencers’ as persons who provide information and/ or advice on various financial topics such as investing in securities, personal finance, banking products, insurance, real estate investment, etc. through social/ digital media platforms/ channels, and have the ability to influence the financial decisions of their followers.