Deciphering the Roadmap for Regulating FinInfluencers in India

Introduction

Financial influencers, commonly referred to as "finfluencers," who lack official licenses or

qualifications to offer financial guidance, have introduced new avenues for promoting
financial literacy. Finfluencers curate concise content covering various financial topics and
simplify intricate numerical data into easily understandable formats. Consequently,
consumers are increasingly turning away from conventional sources of information provided
by licensed advisors and placing unwavering trust in the guidance and suggestions offered by
finfluencers.

Current Framework for Regulating Finfluencers

Currently, there's no specific legislation directly addressing the activities of financial

influencers (finfluencers). However, they are expected to comply with general regulations
such as Section 12-A of the SEBI Act, 1992, and regulation 4 of SEBI (Prohibition of
Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003
(PFUTP Regulations). These regulations prohibit fraudulent, misleading, or manipulative
practices in transactions on the stock exchange, including dissemination of false or
misleading information to influence investment decisions.

While investment advisers (RIAs) in India are regulated by the SEBI (Investment Advisors)
Regulations, 2013 (IA Regulations), finfluencers fall outside this regulatory framework. This
is because RIAs charge for their services and provide personalized advice, whereas
finfluencers generally offer free, publicly available advice.

Similarly, Research Analysts (RAs) in India are governed by the SEBI (Research Analysts)
Regulations, 2014 (RA Regulations), which impose stringent compliance requirements.
However, unregistered finfluencers are not subject to these regulations.

Even the Advertisement code for Investment Advisers (IA) and Research Analysts (RA),
issued by SEBI, applies only to registered RIAs and RAs, not finfluencers. Registered RIAs
and RAs possess professional qualifications, adhere to regulatory requirements, and disclose
conflicts of interest, unlike finfluencers.

SEBI has invoked existing provisions to crack down on finfluencers engaged in fraudulent
activities like 'pump and dump schemes' aimed at defrauding investors.

SEBI’s Consultation Paper: A Way Ahead

The Advertising Standards Council of India (ASCI) recently updated its 'Guidelines for
Influencer Advertising in Digital Media' to enhance accountability among finfluencers.
According to the revised guidelines, influencers operating in the banking, financial services,
and insurance (BFSI) sectors must register with SEBI and possess appropriate qualifications
before offering investment advice. They are also required to transparently disclose their
certified expert status or practitioner credentials whenever discussing or promoting financial
products or services.
A concerning trend has emerged where finfluencers rent SEBI registration numbers from
registered investment advisors (RIAs) to comply with ASCI guidelines and avoid SEBI
oversight. To address these practices, SEBI issued a consultation paper on August 25, 2023.
The paper outlines several measures, including prohibiting unregistered entities from
collaborating with registered intermediaries or regulated entities for promoting their services
or products.

Additionally, finfluencers registered with SEBI, stock exchanges, or the Association of

Mutual Funds in India (AMFI) must include specific information and disclaimers in their
posts, adhere to relevant codes of conduct and advertisement guidelines, and refrain from
paying trailing commissions based on referrals. Furthermore, entities regulated by SEBI or
other recognized regulatory authorities are prohibited from sharing confidential client
information with unregistered entities.

In 2016, SEBI proposed amendments to the Investment Advisors Regulations, aiming to

broaden the definition of "investment advice" to encompass all communication mediums.
However, this proposal faced criticism for its perceived regulatory overreach, leading SEBI
to reconsider its implementation.

Overall, SEBI faces the challenge of balancing free speech with the need for finfluencers to
provide accurate and unbiased information, indicating a continued journey towards regulatory
equilibrium.