Market regulator Securities and Exchange Board of India (SEBI) on Thursday said it is 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 whole-time member (WTM) SK Mohanty said on the sidelines of the Confederation of Indian Industry (CII) national conference on ‘Corporate Frauds: Governance’ held in Mumbai on Thursday.
Simply put, a finfluencer—as a financial influencer is usually called — is one who gives the ordinary investor information and advice on an array of financial topics such as stock market trading, personal finance and mutual funds. Their social media of choice is YouTube, where they post videos, mostly in Hindi or a regional language. Or even ‘Hinglish’ (a mix of Hindi and English), to attract the non-English speaking, newly-minted investors from small towns. People have flocked to these channels in droves, especially in the past two years, with the most popular ones commanding a following running into millions. The popularity of these 10-20 minute-long videos is explained by India’s low financial literacy rate of 27%, according to the National Centre for Financial Education’s 2019 survey. So naturally, first-time investors, especially from far-flung towns and cities, are drawn to these finfluencers. This also explains why some of their most-viewed videos are “How to buy your first share”, “Get regular income from gold”, or even “Earn 2.5 crores in 20 years! How?” Many of those top names names were caught on the wrong foot when they promoted investment in cryptocurrency 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 has posed a regulatory dilemma for SEBI. While the market regulator cannot control every social media post, it plans to put in place clearer norms to govern and increase the accountability of finfluencers.
The popularity of India’s top finfluencers is clear from the fact that they have more YouTube subscribers than new-age broking firms like Zerodha, Groww, Upstox and 5Paisa as well as traditional ones like IIFL, Kotak Securities, ICICI Direct and Angel Broking. Even popular Western finfluencers — like Anthony O’Neal, My Fab Finance, Mr Money Mustache, The Budgetnista and Mrs Dow Jones — have a few thousand or few lakh, subscribers, which are nowhere near the millions claimed by their Indian counterparts. Such is their growing popularity in India that leading broking firms are engaging these YouTube 'stars' to reach out to potential investors.
The regulator’s much-awaited idea to regulate them comes even as the market has witnessed an exponential rise in the number of unregistered financial advisers and finfluencers, offering stock tips on platforms such as Telegram, Instagram, WhatsApp, Facebook, and YouTube. Besides, there have been many reports of companies approaching these influencers, with considerable following on Instagram, Twitter and Facebook, to endorse their stocks.
The regulator must take a ‘segmented’ stance to address the menace of unsolicited stock tips on social media, SEBI chairperson Madhabi Puri Buch had said at a board meeting on 30th September. “I think it’s early days given the complex nature of this issue. We are in discussion with the industry and various stakeholders and it will take us sometime. We do not have visibility on an easy solution yet," she said.
On 10th March, SEBI cracked down on market operators for allegedly manipulating stocks through social media. It carried out searches at the premises of at least seven individuals and one company across several locations in Ahmedabad and Bhavnagar in Gujarat, Neemuch in Madhya Pradesh, New Delhi and Mumbai. SEBI said the perpetrators were purchasing shares in small-cap companies in bulk and then sending messages via social media indicating strong possibilities of a rise the price of the shares to prompt people to buy the stocks.
“SEBI is receiving information that messages with stock tips and investment advice with respect to selected listed companies are being widely circulated through websites and social media platforms," the regulator had said.
On 13th January, SEBI completed a relatively quick investigation to crack down and bar 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 of having four research analysts who were in the process of obtaining SEBI registration. This Telegram channel had 49,000 subscribers!
In its order, SEBI said “social media channels are being exploited for such fraudulent, deceitful, and unfair trade practices. Common investors should be cautious of being enticed by such schemes and it may be prudent to independently research investment opportunities.”
Monitoring social media isn’t very simple. However, what SEBI is trying to find is probably a solution whereby at least those who are cashing out by giving advice on social media are brought under the regulatory ambit. One possible solution is to check if the so-called finfluencers are forging any kind of a contract. It can then become easy to regulate them. SEBI’s main intent here is to prevent mis-selling and stock price manipulation. There might be certain challenges to achieving this, though.
While there are no specific regulations from SEBI that address financial influencers, the Advertising Standard Council of India (ASCI), a voluntary, self-regulatory organisation, prescribes that upfront and prominent disclosures must be made by influencers on brand collaborations, advertisements, paid partnership or sponsorships for all such posts on all platforms. It also directs influencers to follow due diligence.
Data shared by ASCI showed that there has been some decline in violations by financial influencers, specifically with regard to promotional content on crypto-assets. In the FY21-22, there were a total 415 instances of violations by influencers and celebrities in finance- and cryptocurrency-related content. Of these, 43 were finance-related, while 372 were connected to cryptocurrency promotional content. In the first half of the current financial year, ASCI has observed a total of 71 violations in such cases—15 being finance related, while 56 were on cryptocurrencies.