Editorial. SEBI’s move to curb reach of finfluencers, a good first step

Since Covid, social media influencers have amassed a large following by offering engaging content on investing and derivatives trading. So much so, that novice investors have begun to look to social media for advice on financial matters. With the new breed of ‘finfluencers’ not subject to any of the regulations that govern SEBI-registered advisors, analysts or market intermediaries, malpractices such as paid promotion of financial products masquerading as advice and use of social media channels to aid stock manipulation and front-running have come to light.

So far, SEBI has dealt with these infractions on a case-to-case basis. But significant regulatory arbitrage has opened up between these finfluencers and conventional SEBI-registered research analysts and investment advisers, who are subject to stringent regulatory norms. This has flagged the need for water-tight rules for finfluencers. SEBI’s latest consultation paper seeking to stop regulated market entities from associating with finfluencers to advertise their products seems to be the first step to address this by disrupting the revenue sources of the latter.  

The paper proposes to completely bar SEBI-registered intermediaries and regulated entities (which will include brokers, mutual funds, research analysts, wealth managers, portfolio managers, et al) from having any association or relationship, whether monetary or non-monetary, with unregistered entities including finfluencers, for the promotion of their products or services.  Payment of referral fees or commissions to finfluencers has also been disallowed. Regulated entities have also been asked to actively dissociate from finfluencers using their brand or product names in their advertisements, with onus on them to take legal action against such misuse. The proposed rules will put a stop to finfluencers presenting paid advertisements for financial products as bona fide research and promoting derivatives or stock trading on a referral basis for a commission. But these practices are still not as unsavoury as operators running YouTube, Telegram and WhatsApp channels — ostensibly for micro-stock and derivatives research — and duping their followers by front-running their own calls. There are also instances of ‘research’ and ‘education’ channels being used for pump-and-dump operations or stock price rigging in cahoots with promoters.

As SEBI cannot practically monitor or bar all social media content on finance , its only recourse is to educate investors on how to spot fraud . SEBI also needs to mark its official presence on Twitter, YouTube, Instagram and other social media, where it is currently invisible, to engage directly with investors and allow direct reporting of grievances to it.

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