In a significant crackdown on fraudulent market consultants and investment gurus, or “furus”, Meta has required advertiser authentication for all securities and investment-related advertisements that target Indian consumers beginning on July 31.
All advertisers running investment ads in India, including international campaigns targeting Indian audiences, must confirm the person or entity benefiting from and paying for the ad by providing valid SEBI registration details, according to updated terms of service announced on June 26 by Meta.
This comprises the name of the company, its SEBI registration number, and its registered phone number and email address. For authentication, Meta will supply the specified contact with a verification code.
Along with unique disclaimers made during ad setting, the SEBI registration number, organisation name, and location would be shown publicly on the advertisement as payer and beneficiary.
Advertisers to Get One Month to Complete Verification
According to Meta, advertising professionals will have at least a month to finish the screening procedure, and by July 28, the feature should be completely operational.
As long as the advertiser account is validated, ads that were active before July 31 do not require editing. In an effort to improve transparency and prevent fraud by dishonest influencers, the capital market regulator partnered with digital platforms to verify financial advisors earlier this year after much consideration and a thorough consultation process.
Meta has established alternative verification mechanisms for individuals who seek exemption from regulator registration, such as financial instructors or trainers.
Organisations must upload pertinent business documents, and individuals must present at least one government-issued ID. The advertisements will continue to reveal the confirmed identity.
Ads that Don’t Require Verification
Ads pertaining to training, talent development, or financial education might not need SEBI verification, Meta explained. Cyber law expert counsel (Dr) Prashant Mali said that Meta’s verification of SEBI credentials was long overdue and that Google should do the same for its YouTube channel.
In actuality, META and Google, with SEBI’s assistance, must immediately eliminate all prior shorts, reels, and videos that violate SEBI regulations and ultimately mislead investors. This verification was something that Dr Mali was always pushing for.
The action comes after a news release issued by SEBI on March 21 requesting that all intermediaries registered with the agency that advertise on social media platforms submit their verified contact information with the agency.
A surge in securities-related scams on websites like YouTube, Facebook, Instagram, WhatsApp, X (formerly Twitter), Telegram, Google Play Store, and Apple App Store was noted by the regulator.
According to Meta, the policy’s objectives are to improve customer safety, stop fraud and impersonation, and maybe expand such regulations to other financial product categories in the future.
On 29 January, the Securities and Exchange Board of India released additional explanations regarding the finfluencer rules. Brokers, mutual funds, investment advisers, exchanges, and other market participants are prohibited from having a direct or indirect relationship with unregistered influencers, according to the document on the SEBI website.
The regulator’s goal is still to shield investors from deceptive financial advice and promises of assured returns, even with these stronger safeguards in place. First of all, the rules are applicable to all market players governed by SEBI, including distributors of mutual funds, sub-brokers, and marketing firms that work with them. Simply put, it is against the law for SEBI-registered firms to associate with unregistered entities that make stock market recommendations or suggest assured returns.
According to the regulator, unless the individual is registered with or otherwise authorised by the Board to provide such advice or recommendation, no person regulated by the Board (Sebi) or the agent of such a person may have a direct or indirect association with another individual who provides advice or recommendations, directly or indirectly, regarding or related to a security or securities, or make any explicit or implicit claims of returns or performance regarding or related to a security or securities, unless the Board has given the individual permission to do so.
Bodies that Fall Under the Umbrella of New Guidelines
Any cash exchanges, client recommendations, information sharing, and the use of services for marketing or promotions are all included in this relationship. Actually, SEBI has stated that it is prohibited to cooperate with an agency that collaborates with influencers.
SEBI has tightened its control over the educator’s abilities and responsibilities, with investor protection remaining an exception. Any investor educator is not permitted to make any statements regarding investor returns, suggest particular stocks and securities, or forecast future trends using market data from the previous three months.
However, a brief window has been made available for investor education through this cooperation. This is contingent upon the fact that these influencers do not offer recommendations or make any claims regarding returns or performance.
Impact on Marketing and Advertisement
The barriers may also have an intriguing effect on marketing and advertising. If they have control over where their ads appear, all SEBI-registered businesses are permitted to run them. It would be against the law if they had no control over where the advertisements were displayed and could not identify influencers.
When there is a violation, SEBI has the authority to ban offenders from the market, terminate registrations, or issue penalties. On August 29, 2024, these restrictions were introduced, and on October 22, 2024, an additional alert was released. These regulations are already in effect because the regulator requested that registered participants get their acts in shape within three months after the October circular.
Due to rising worries about the risks connected with unregistered financial influencers (finfluencers), markets regulator Sebi has revised standards to regulate them. Through three distinct announcements, the authority has limited the ability of its regulated businesses to do business with unregistered persons.
This followed last month’s approval of a similar plan by the Sebi board. According to the notices, individuals who are regulated by Sebi and their agents are not allowed to be associated with anyone who offers advice, recommendations, or makes explicit claims of return in any way, whether through financial transactions, client referrals, or interactions with information technology systems.
According to the regulator, no individual or agent regulated by the Board (Sebi) may be directly or indirectly associated with someone who gives advice or recommendations about securities (either directly or indirectly), unless that person is registered with or otherwise allowed by the Board to do so. Similarly, no one can make any claim—expressly or impliedly—about returns or performance related to securities (either directly or indirectly) unless they have been authorized to do so by the Board.
Sebi Setting Standards for Accountability
According to industry insiders, Sebi is establishing a benchmark for competence and transparency in the industry by mandating that finfluencers register with the regulator and follow certain rules.
This change would make it such that stock brokers, research analysts, mutual fund firms, and registered investment advisors can’t work together with finfluencers.
However, such cooperation has opened a modest opportunity for investor education. This is predicated on the premise that these finfluencers will not make any suggestions or assert any kind of profit or success.
Technology platforms are being encouraged by Sebi to build systems that can detect and track unregulated content to enhance its supervision. A larger strategy to improve its regulatory structure includes this proactive approach, which is part of Sebi’s overall plan. For their part, Kamlesh Varshney, a whole-time member of Sebi said that Sebi is thinking about easing several regulations about research analysts and registered investment advisers. At the next Sebi board meeting in September 2024, the idea—which garnered more than a thousand replies—is likely to be considered.
Why Sebi Has Taken This Step?
The new Sebi standards prohibit any association, whether direct or indirect, between unregistered finfluencers and businesses that are regulated by Sebi. These entities include mutual fund houses, stockbrokers, and research analysts. With the help of new restrictions, ordinary investors will be protected from the biased or deceptive advice that is frequently provided by these influencers, who typically operate on a commission-based compensation model.
As long as there are no promises for financial advice or returns, there is still a limited window of opportunity for investor education, even though Sebi’s crackdown is intended to protect investors. By establishing these severe requirements, the Securities and Exchange Board of India (SEBI) hopes to encourage accountability and guarantee that only those who are certified and regulated will provide financial guidance in the market.
Hey everyone! Do you know those cool finance folks on Instagram and YouTube who give investment tips and talk about making big money? Well, they may be getting regulated by the market regulator Securities and Exchange Board of India soon!
The Securities and Exchange Board of India (SEBI), the big boss of stock markets in India, is thinking about setting up some rules to follow and guidelines for these finance influencers, or “finfluencers” as they’re called.
“The Securities and Exchange Board of India (SEBI) is contemplating guidelines to rein in finfluencers’ activities,” SEBI chairperson Madhabi Puri Buch said on March 11 at an event in Mumbai.
Industry experts are of the view that this move will bring transparency and accountability in the financial services space, but it would be tough for the regulatory body to define the term ‘finfluencers’ as per guidelines.
“SEBI might face several problems in defining the scope of a ‘finfluencer’ and the nature of financial advice. Additionally, proving intent to mislead can be complex,” Rest The Case Founder Shreya Sharma told StartupTalky.
Sharma heads an online platform, Rest The Case, that acts as a legal aggregator, providing seamless connections between lawyers and clients. The platform makes legal services accessible to all with just a click.
“Potential challenges that may arise are jurisdictional issues in cases of international influencers, maintaining privacy and freedom of speech while ensuring compliance, and interpretation of content standards prescribed by SEBI,”Sharma, a lawyer by profession, said on the query the legal challenges that SEBI may encounter in enforcing regulations on finfluencers.
With a growing number of internet users and investors, financial influencers are becoming super popular and influencing a lot of people’s money decisions. But sometimes, they might not give the best advice, and that could be risky for your savings!
“The real problem is in defining the ‘fininfluencers’ and monitoring them. Today, any citizen has the fundamental right to speech and expression and to share their views publicly on any social media platform subject to just restrictions.
“There are leading individuals who give interviews and explain their logic on markets/budget/finance and market-related issues which touch the lives and hearts of many individual investors. There are many organized and random players who regularly share updates through videos, chats, and blogs,” SNG & Partners Managing Partner Rajesh Narain Gupta told StartupTalky.
What These Guidelines May Include?
Be Honest: Finfluencers might have to tell the masses if they’re getting paid to promote something or if they have any connections to the products they’re talking about. That way, the public knows if they’re just trying to sell stuff or if they’re giving genuine advice.
Follow the Rules: Just like professionals in finance have to follow certain rules, finfluencers might have to too! This means they need to play fair and not mislead people with fake promises or shady deals.
Keep it Real: SEBI might want finfluencers to be more careful with what they say. No more wild claims or hyping up things that aren’t true. They need to be straight about the risks and rewards of investing.
Teach People: Instead of just showing off their success stories, finfluencers might have to focus more on educating people about money matters. That means helping everyone understand how investments work and how to make smart choices with cash.
As per experts, SEBI can consider different approaches to ensure the effective enforcement of the guidelines.
Technology-driven monitoring: Utilize data analytics to track online activity and identify potential violations.
Surprise audits: Conduct regular audits of SEBI-registered entities to ensure adherence to the regulations regarding influencer partnerships.
Investor grievance redressal: Establish a strong system for investors to report misleading information from finfluencers.
“There are still many who are not associated with any regulated entity but still in their own rights are heavy lifters and a word from them influences millions. The regulator (SEBI) has to intelligently qualify who the impacted ‘Fininfluencers’ will be and how the restrictions will not fall in the mischief of the right to speech and expression in a democratic country. Whether there is enough existing infrastructure to adjudicate and punish the wrong doer is another big issue,” SNG & Partners’ Gupta said.
Gupta is an independent director on the boards of HDFC Capital Advisors Limited, HDFC Credila Financial Services Limited, and J.C. Flowers Asset Reconstruction Private Limited.
Advocating on similar lines, Sharma said that SEBI must collaborate closely with legal experts to address these challenges proactively and develop comprehensive strategies that uphold regulatory objectives while respecting constitutional rights.
Public Comments
In August last year, SEBI floated a consultation paper for stakeholders’ discussion in this regard to protect investors from potential risks posed by unregistered financial influencers.
SEBI had opened the floor for public comments on its proposal to limit the association of SEBI-registered intermediaries with unregistered finfluencers.
The objective is to gather feedback on proposed restrictions, aiming to maintain market integrity and minimize risk.
In the consultation paper, SEBI proposed stringent measures aimed at curbing ‘finfluencers’ association with registered intermediaries and regulated entities.
Background: The Rise of Finfluencers
The proliferation of financial influencers, or ‘finfluencers’, has garnered significant attention in recent times. While some provide genuine education, many operate without proper registration or authorization as investment advisers or research analysts.
As per the market regulator, only the registered ones would be eligible to post advice on the stock market on social media. This move could benefit traders and investors to identify eligible advisors and analysts.
Finfluencers often attract investors/prospective investors through their engaging stories, messages, reels, and videos on various social media platforms such as Instagram, Facebook, YouTube, LinkedIn, Twitter now X, the consultation paper said.
“Finfluencers registered with SEBI or stock exchanges or (Association of Mutual Funds in India) AMFI in any capacity shall display their appropriate registration number, contact details, investor grievance redressal helpline, and make appropriate disclosure and disclaimer on any posts,” SEBI said.
SEBI’s proposal included strict limitations on the association between registered intermediaries and unregistered finfluencers. It proposed to prohibit any form of association, monetary or non-monetary, for the promotion of services/products.
Additionally, entities must refrain from sharing confidential client information with unregistered parties and ensure compliance with advertisement guidelines.
As per the ‘Guidelines for Influencer Advertising in Digital Media’ released by the Advertising Standards Council of India, ‘influencer’ means “someone having access to an audience and power to affect such audiences’ purchasing decisions or opinions about a product, service, brand or experience, because of the influencer’s authority, knowledge, position, or relationship with their audience.”
Challenges
There are tons of finfluencers out there, and making sure they all play by the same rules could be a challenge. But if it means people can trust the advice they’re getting online, it’s worth a shot!
Of course, getting everyone to follow these rules won’t be easy. Despite having registered numbers it would be tough to identify the authenticity of the number being shown on the post.
SEBI needs to enlighten people and make them aware of the risks associated with the financial markets.
As per the legal expert, Sharma, the market watchdog, must include auditors and legal experts, who can play a crucial role in supporting SEBI-registered entities:
Auditors and Lawyers can conduct compliance workshops to educate entities on the regulations and best practices for responsible influencer partnerships.
They can help develop internal compliance frameworks. These frameworks will help entities establish internal processes to monitor influencer activity and manage associated risks.
Rajesh Gupta, who is an advisor to many leading Indian and foreign banks, financial institutions, real estate players, and industrial houses believes that “reasonable restrictions can be put on regulated entities to engage with fininfluencers, but, would it solve the problem is a million-dollar question. Investors’ education and training are more critical aspects as we have countless existing regulations.”
Conclusion: A Step Towards Investor Protection
Well, without rules, anyone can call themselves an online finance expert, and that can be dangerous. If people follow bad advice, they could end up losing a lot of money.
By disrupting the revenue model of unregistered finfluencers and promoting transparency, the proposed measures aim to foster a more secure investment environment.
So, let’s keep an eye out for what SEBI decides. Who knows, it might change the viewpoint about finance influencers forever!
FAQs
What are finfluencers?
Finfluencers are a distinct subset of influencers who specialize in creating content centered around financial topics, such as investing, saving, budgeting, and personal finance. They leverage their expertise and experience to provide advice, tips, and insights to their audience through various social media platforms.
What could the guidelines from SEBI include for the finfluencers?
The guidelines may include finfluencers to be honest, to follow the rules, to be real, and to teach people correctly.
What is the impact of finfluencers?
Although finfluencers have been instrumental in promoting financial literacy and encouraging investor engagement in the finance market, their operations lack regulation, thereby potentially exposing investors to risks.
Influencer marketing is defined as a form of social media marketing According to Statista, the global influencer market size has more than doubled in value since the year 2019. Currently, its estimated value is USD 21.1 billion. The ever-expanding platforms of social media are used by marketers and influencers to bridge the gap between brands and consumers.
Within the spectrum of social media influencers, the last few years have witnessed the rise of financial influencers. Commonly known as finfluencers, are influencers who give information and advice on a wide variety of financial topics that include stock market trading, personal finance, and mutual funds. They use various social media platforms, with YouTube being their medium of choice. Such financial influencers post short videos in either English or even regional languages to connect with small-town investors. Some popular finfluencers have a following that runs into millions.
The National Center for Financial Education conducted a survey in the year 2019 that highlighted the low financial literacy rates in the country (27%). This played a leading role in the large-scale popularity of financial advice videos from various financial influencers. First-time investors, specifically from far-flung towns and cities were drawn to these videos. The pandemic and the resulting lockdowns saw an explosion in the popularity of finfluencers in India as millions of new investors entered the market. Trading was democratized as broking firms-built apps that were user-friendly, the availability of affordable smartphones was easy, data plans became cheaper and the rise of digital payments helped further ease for new entrants into the investment market. The gap that was then created by the lack of financial knowledge was fulfilled by finfluencers.
Case of PR Sundar & Mansun Consultancy
The financial influencer P R Sundar was running a website named www.prsundar.blogspot.com through which he offered various advisory services instead of different payment packages. The collected fees that were received using a payment gateway were linked to his company Mansun Consultancy Pvt. Ltd. The company was founded in June 2017 with two promoting directors, Mr. P. R. Sundar and Ms. Mangayarkarasi Sundar.
The Securities and Exchange Board of India (SEBI) received two references that stated that Sundar was offering financial consulting services through Mansun Consultancy without obtaining the necessary SEBI registration. This prompted the market regulator to issue a ‘show cause’ notice in May 2022 followed by a supplementary show cause notice in November 2022 where it alleged that the website had a tab titled ‘Advisory’ and that the business mentioned as per KYC documents of ICICI Bank and Razorpay stated it as a share marketing consultancy.
SEBI had discovered that Mansun Consultancy was recommending purchasing, selling, and dealing in securities which was, then, communicated to clients. All these activities come under the purview of a registered investment advisory business. It is important to note that Sundar had over a million followers on YouTube and another hundreds of thousands on Twitter.
To quickly and efficiently deal with this breach, Mansun Consultancy has agreed to pay a settlement of INR 15,60,000/-each, for a total of Rs. 46,80,000/- to SEBI, as well as a disgorgement amount of Rs. 6,07,69,863/, with interest at 12% per year from June 1, 2020, till the date of submission of the RST. Apart from this, the firm and its promoters have also agreed to refrain from buying, selling, or dealing in securities for one year from the passing of the settlement order.
SEBI’S action against P R Sundar has been welcomed by registered investment advisors who have been, for some time, raising the issue of disparity in regulations between them and the finfluencers.
Union Finance Minister Smt. Nirmala Sitharaman had addressed the concerns that are circling the finfluencer community and had warned against the dangers of Ponzi schemes that offer financial solutions. She clearly stated that since there was no current proposal to regulate influencers, a cautious approach was necessary –
“If there are three or four people giving us very objective, good advice, there are seven others out of 10 who are probably driven by some other considerations.”
SEBI issued an advertisement code in April 2023 for investment advisors and research analysts to strengthen their compliance with the IA regulations. Under the stipulations of this code, any communication, whether audio-visual, text messages or messaging platforms, issued by or on behalf of an investment adviser that may influence investment decisions requires prior approval from BASL (BSE Administration & Supervision Ltd.). This is a first step towards promoting and regulating the growth of the finfluencer community.
Financial Influencers A Growing Concern In India, Says FM Nirmala Sitharaman
Conclusion
The finfluencer community is emerging rapidly and at an unprecedented pace. SEBI is striving to regulate a segment that was not even in existence half a decade ago. Hence, it does not have a regulation playbook to rely on and, essentially, is forging its regulatory path in a segment that is also highly fragile to unruly players. Having said this, finfluencers play a critical role in financial literacy. Hence, SEBI has the unenviable task of regulating the segment without undermining its contribution. Time will reveal how SEBI designs its regulations that allow the finfluencer segment to function optimally.
FAQs
Who are Finfluencers?
Finfluencers are influencers who give information and advice on a wide variety of financial topics that include stock market trading, personal finance, and mutual funds.
What did SEBI issue for investment advisors and research analysts to strengthen their compliance with the IA regulations?
SEBI issued an advertisement code for investment advisors and research analysts. It stated that any communication, whether audio-visual, text messages, or messaging platforms, issued by or on behalf of an investment adviser that may influence investment decisions requires prior approval from BASL (BSE Administration & Supervision Ltd.).
