Market regulator SEBI is set to release a draft discussion paper within the next few months, aiming to establish rules and guidelines to regulate the growing number of unregistered financial influencers, also known as “finfluencers,” who provide investment advice to the public. This initiative comes in the wake of reports about the income tax department issuing notices to top 35 social media influencers for failing to pay taxes worth crores of rupees. Additionally, recent searches conducted on the top 13 YouTubers in Kerala for similar offenses have further fueled the need for regulatory measures.
SEBI Formulating Discussion Paper to Tackle Unregistered Advisors and Manipulation
SEBI Chairperson Madhabi Puri Buch stated that a discussion paper is being formulated to regulate financial influencers, which will be open for public comments in the coming months. The announcement was made after a board meeting where SEBI approved several regulatory measures, including reducing the share listing time to three days after an initial public offering (IPO) and enhancing disclosure norms for large foreign portfolio investors.
Chairperson Buch clarified that educating investors about the market and investments is not an issue, but unregistered individuals offering unsolicited investment advice without SEBI registration pose a serious problem. Numerous unregistered finfluencers manipulate the market by providing unqualified advice to unsuspecting individuals, earning substantial commissions from platforms and benefiting from stock manipulation.
With the proliferation of finfluencers on social media platforms like YouTube, Instagram, Telegram, WhatsApp, and Twitter, SEBI has been cautioning the public to be vigilant against falling prey to misleading advice. The regulatory authority has also hinted at introducing regulations to rein in these influencers. SEBI aims to gather inputs from market participants and stakeholders to formulate effective measures to control unsolicited financial and market advice.
SEBI Rolls its Sleeves to Combat Market Abuse and Misleading Advice
SEBI has previously taken action against manipulators using platforms like Telegram for market abuse through stock recommendations. It has also cracked down on YouTubers, barring around 44 entities from the securities market for price manipulation. In a recent case, finfluencer P.R. Sundar was fined ₹6.5 crore and banned from the market for a year for alleged violations of investment adviser norms. This marked the first instance of SEBI taking action against a financial influencer.
To curb the spread of financial advice through social media advertising and marketing campaigns, SEBI plans to direct brokers and mutual funds to limit their association with financial influencers. The regulator is also planning to introduce guidelines for social media influencers on financial matters, considering the surge in application-based content where influencers promote specific asset classes without proper licensing or expertise.
The concerns surrounding financial influencers have gained attention from Finance Minister Nirmala Sitharaman, who warned about the risks posed by Ponzi apps offering financial solutions. The Advertising Standards Council has also established guidelines for influencers who can influence purchasing and investment decisions.
