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SEBI to regulate financial influencers on social media platforms

Market regulator Securities and Exchange Board of India (SEBI) said on Thursday it was working on a set of guidelines for financial influencers, or finfluencers, giving unsolicited financial advice on social media platforms.

“We are working on guidelines for financial influencers,” SEBI (WTM) full-time member SK Mohanty said on the sidelines of the Confederation of Indian Industry’s (CII) national conference on “investment fraud”. ‘Business: Governance’ held in Mumbai on Thursday.

Simply put, an finfluencer – as a financial influencer is commonly referred to – is one who provides mainstream investors with information and advice on a range of financial topics such as stock trading, personal finance and mutual funds. Their favorite social network is YouTube, where they post videos, mostly in Hindi or a regional language. Or even “Hinglish” (a mixture of Hindi and English), to attract new non-English speaking investors from small towns. People have flocked to these channels in droves, especially over the past couple of years, with the most popular having millions of subscribers. The popularity of these 10-20 minute videos is driven by India’s low financial literacy rate of 27%, according to the National Center for Financial Education’s 2019 survey. So naturally, new investors, especially those in distant cities, are drawn to these influencers. This also explains why some of their most viewed videos are “How to buy your first share”, “Get a steady income from gold”, or even “Earn 2.5 crores in 20 years! How?” Many of these big names were taken on the wrong foot when they promoted cryptocurrency investing and millions lost their money.

Armed with millions of followers, they have the power to influence stock prices or boost mutual fund (MF) offerings. This posed a regulatory dilemma for SEBI. Although the market regulator cannot control every social media post, it plans to put in place clearer standards to govern and increase the accountability of influencers.

The popularity of major Indian finfluencers is evident from the fact that they have more YouTube subscribers than new-age brokerage firms such as Zerodha, Groww, Upstox and 5Paisa, as well as traditional firms such as IIFL, Kotak Securities, ICICI Direct and Angel Broking. Even popular Western finfluencers – like Anthony O’Neal, My Fab Finance, Mr Money Moustache, The Budgetnista and Mrs Dow Jones – have a few thousand or a few lakh followers, a far cry from the millions claimed by their Indian counterparts. Their growing popularity in India is such that major brokerage firms are using these YouTube “stars” to reach out to potential investors.

The regulator’s long-awaited idea to regulate them comes even as the market has seen an exponential rise in the number of unregistered financial advisers and influencers offering advice on stocks on platforms such as Telegram, Instagram, WhatsApp, Facebook. and YouTube. Additionally, there have been numerous reports of companies approaching these influencers, with considerable followings on Instagram, Twitter and Facebook, to endorse their actions.

The regulator must take a “segmented” stance to deal with the threat of unsolicited stock market advice on social media, SEBI Chairman Madhabi Puri Buch said at a September 30 board meeting. “I think this is just the beginning given the complex nature of this issue. We are in discussions with the industry and various stakeholders and it will take us some time. We don’t yet have visibility on an easy solution,” she said.

On March 10, SEBI cracked down on market operators for allegedly manipulating stocks via social media. He raided the premises of at least seven people and a business in several locations in Ahmedabad and Bhavnagar in Gujarat, Neemuch in Madhya Pradesh, New Delhi and Mumbai. SEBI said the perpetrators bought shares of small-cap companies in bulk, then sent messages through social media indicating strong opportunities for rising stock prices to entice people to buy the shares.

“SEBI is receiving reports that posts containing stock advice and investment advice regarding certain listed companies are being widely circulated on websites and social media platforms,” ​​the regulator said.

On January 13, SEBI completed a relatively quick investigation to crack down and debar six people behind a Telegram channel called “Bullrun2017” for making false and baseless recommendations for trading in the cash and derivatives segments over an 11-month period. The channel had made a false claim that four research analysts were in the process of obtaining the SEBI registration. This Telegram channel had 49,000 subscribers!

In its order, SEBI said that “social media channels are exploited for such fraudulent, deceptive and unfair business practices. Ordinary investors should be careful not to be lured into such schemes and it may be prudent to independently research investment opportunities.

Social media monitoring is not very simple. However, what SEBI is trying to find is likely a solution whereby at least those cashing in on social media advice are subject to regulation. One possible solution is to check if the so-called finfluencers are forging any type of contract. It can then become easy to regulate them. SEBI’s main intention here is to prevent mis-selling and stock price manipulation. However, there might be some challenges in achieving this.

While there are no specific SEBI regulations regarding financial influencers, the Advertising Standard Council of India (ASCI), a voluntary self-regulatory organization, prescribes that influencers must make prior and visible disclosures on brand collaborations, advertisements, paid partnerships. or sponsorships for all these posts on all platforms. It also asks influencers to do their due diligence.

Data shared by ASCI showed that there has been some decrease in breaches by financial influencers, particularly in relation to promotional content about crypto-assets. In fiscal year 21-22, there were a total of 415 instances of influencer and celebrity violations in finance and cryptocurrency-related content. Of these, 43 were related to finance, while 372 were related to cryptocurrency promotional content. In the first half of the current fiscal year, ASCI observed a total of 71 breaches in such cases, of which 15 related to finance, while 56 related to cryptocurrencies.

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