Sebi finalising draft discussion paper over guidelines for 'finfluencers'

Market regulator Sebi (Securities and Exchange Board of India) is taking steps to tackle the increasing number of unregistered financial influencers, commonly known as "finfluencers," who provide investment advice to the public. Sebi Chairperson Madhabi Puri Buch announced that the organisation is in the process of finalising a draft discussion paper that will serve as the foundation for rules and guidelines to regulate these individuals. The move comes after reports of the income tax department issuing notices to the top 35 social media influencers for not paying taxes worth crores of rupees, as well as recent searches on the top 13 Youtubers in Kerala for similar offences.

Speaking to reporters after a marathon board meeting, Buch stated that the discussion paper aimed at regulating financial influencers would be ready for public comments within the next couple of months. The board meeting also resulted in several regulatory measures, including reducing the share listing time after an IPO from six days to three days. Additionally, Sebi decided to tighten disclosure norms for large foreign portfolio investors.

"We are crystalising a discussion paper to regulate financial influencers. The paper should be ready for public comments in the next couple of months," she said.

Buch clarified that Sebi does not have an issue with individuals educating investors or potential investors about the market and investments. However, the organisation sees a serious problem when unregistered influencers offer unsolicited investment advice without being registered with Sebi. Many unregistered finfluencers manipulate the market and provide misleading advice to the unsuspecting public. They earn substantial sums of money through commissions from platforms and through trading stocks they have promoted or demoted. Social media platforms like Youtube, Instagram, Telegram, WhatsApp, and Twitter have witnessed a surge in the number of such individuals in recent years. Sebi has consistently cautioned the public against falling into their advisory traps and has hinted at introducing regulations to curb their activities.

During the February 2023 board meeting, Sebi's whole-time member, Ananth Narayan Gopalkrishnan, revealed the organisation's intention to seek inputs through a discussion paper to effectively control unsolicited financial and market advice from social media influencers and unregulated investment advisors. After gathering inputs from market participants and stakeholders, Sebi will issue guidelines to rein in these individuals. The issue of unregistered investment advisors, who pose higher risks to vulnerable investors, is also of concern. Moreover, there have been instances of registered advisors misusing their Sebi registrations.

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The need for guidelines governing social media influencers in financial matters has gained attention with the rise of application-based content, where popular influencers promote specific asset classes without the proper licenses or knowledge. Sebi has previously taken action against WhatsApp groups and Telegram channels used to leak market-moving data, leading several large companies to change their earnings press conferences to weekends or cease media interactions altogether.

Sebi is planning to direct brokers and mutual funds to limit their use of financial influencers in order to curb the spread of financial advice through social media advertising and marketing campaigns involving these influencers.

While Sebi has been discussing regulations to address the issue of financial influencers since January 2022, no official guidelines have been issued yet. However, the organisation has selectively acted against manipulators. In January 2022, Sebi uncovered market abuse through stock recommendations on Telegram. On March 2 of the same year, Sebi cracked down on Youtubers and barred approximately 44 entities from the securities market for manipulating prices and making illicit gains.

More recently, on May 27 of this year, Sebi imposed a fine of Rs 6.5 crore on finfluencer PR Sundar and banned him from the market for one year due to alleged violations of investment adviser norms. Sundar, a Youtuber and options trader, settled the case by paying the fine. This marked the first instance of Sebi taking action against a finfluencer. Sebi's investigation revealed that Sundar operated the website prsundar.blogspot.com, offering various advisory services for a fee. Payments for these services were collected through a payment gateway linked to the bank account of Mansun Consultancy, a company co-promoted by Sundar. The case involved violations dating back to 2022 and resulted in the prohibition of Sundar, Mansun Consulting, and Mangayarkarasi Sundar from buying, selling, or dealing in securities for one year. Sundar also did not possess a Sebi registration.

Finance Minister Nirmala Sitharaman recently addressed concerns regarding financial influencers and cautioned about the dangers posed by Ponzi apps offering financial solutions. The Advertising Standards Council has established guidelines for influencers who can influence purchasing and investment decisions.

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