SEBI proposes to regulate ‘finfluencers’ for accountability and accuracy

Regulating finfluencers: The surge in financial influencers, commonly known as finfluencers, who can charge up to Rs 7.5 lakh for a single social media post, has prompted SEBI to propose measures to regulate their activities.

SEBI’s proposal aims not only to ensure investors receive accurate and unbiased financial information but also to maintain authenticity and reduce fraudulent activities, according to Feroz Azeez, Deputy CEO of Anand Rathi Wealth.

Under the proposed regulations, finfluencers would be required to register with SEBI and adhere to specific guidelines. Unregistered finfluencers may also face bans on partnering with mutual funds and stockbrokers for promotional activities.

While many finfluencers provide valuable insights, concerns have grown regarding unregulated individuals who might offer biased or misleading advice. Most of these influencers operate on a commission-based model.

“Finfluencers charge as little as Rs 10,000 to as much as Rs 7.5 lakh for an individual post, excluding tax. Influencer marketing agencies quote as much as Rs 20 lakh for a campaign, plus taxes, to entice their followers,” Azeez said.

Additionally, many finfluencers generate income from referral fees or profit-sharing for promoting products, channels, platforms, or services, or they receive compensation directly from social media and other platforms.

Consultation paper to address associated risks

To address the risks associated with finfluencers, SEBI released a consultation paper proposing restrictions on registered intermediaries or regulated entities partnering with unregistered influencers.

In an age where financial advice is increasingly disseminated through social media, distinguishing credible advice from misleading information can become challenging. 

By requiring finfluencers to register with Sebi and adhere to specific guidelines, the regulator is setting a standard for accountability and expertise in the sector, Sonam Srivastava, Founder and Fund Manager at Wright Research, PMS, said.

“The regulatory move to address the role of financial influencers, or finfluencers in the financial sector is undoubtedly significant in enhancing investor protection and promoting transparency in the industry,” Anand Rathi Wealth’s  Azeez said.

Significant influence on followers

Finfluencers have significantly influenced their followers’ financial decisions in recent years, and SEBI’s regulatory framework aims to make them accountable for the advice they provide, stated Tejas Khoday, Co-founder and CEO of FYERS. These regulations could help prevent conflicts of interest and recommendation biases while striking a balance between regulation and innovation.

Khoday emphasised the importance of harnessing digital media’s power to increase financial awareness transparently and fairly without compromising social media’s far-reaching impact.

Furthermore, SEBI has proposed creating a closed ecosystem for fee collection by SEBI-registered Investment Advisers (IAs) and Research Analysts (RAs) from their clients. This closed system will help investors ensure their payments reach only registered IAs and RAs, providing a safeguard against unregistered entities.

(With PTI inputs)