New guidelines for financial influencers under works, says Sebi

Merely giving disclaimers may not guard finfluencers from regulatory action

The Securities and Exchange Board of India (Sebi) is formulating guidelines for financial influencers or finfluencers, curbing the unsolicited and rampant stock recommendations and financial advice on social media platforms without availing the market regulator’s registration.

At the sideline of an event in Mumbai, Sebi whole time member Santosh Kumar Mohanty said, “Sebi is working on guidelines for financial influencers.”

The watchdog had earlier warned investors to not rely on stock tips, recommendations and financial advice received on social media platforms.

Mohanty clarified that even if there is a lack of contract, they may be liable for action for giving financial advice without being registered with the markets regulator. Furthermore, giving a disclaimer about not being registered with Sebi and still continuing to give recommendations may also invite a regulatory action.

Experts say this will curb the influencers which post stock recommendations.

Earlier, Sebi chairperson Madhabi Puri Buch had hinted at regulators' initiative to curb unsolicited recommendations on all kinds of platforms including Telegram and WhatsApp.

The markets regulator has continuously taken action against individuals violating its investor advisor regulations by imposing penalties, ensuring money taken from clients is returned and, in some cases, imposing ban. However, these are mostly on the back of investor complaints.

In lack of proper framework and regulations, finfluencers continue to give advice claiming it to be under the sphere of financial literacy. Finfluencers are of the opinion that as they do not charge any fee from people on social media and nor do they enter in any contract for investment advice, they should not be liable under investment advisor regulations.

Legal experts say that the new guidelines could include clearer definitions for finfluencers, including introduction of certification, licensing or registration to bring in accountability.

Earlier this month, stock exchanges had issued a notice, followed by Sebi guidelines communicated to them on October 27, regarding norms to be followed to determine celebrity status for issuing advertisements. In this notice, an influencer with more than 10 lakh followers or subscribers on any social media platform is not just limited to Youtube, Instagram, Facebook, and Twitter.

Industry expects similar definitions for governing financial influencers also.

Data shared by Advertising Standard Council of India (ASCI) showed that in the financial year 2021-22, there were a total 415 instances of violations by influencers and celebrities in finance and cryptocurrency related content. Of this, 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 71 violations in such cases – 15 being finance related while 56 were on cryptocurrencies.

Presently, guidelines for finfluencers by ASCI prescribes upfront and prominent disclosures by influencers on brand collaborations, advertisements, paid partnership or sponsorships for all such posts on all platforms. However, it falls short in covering stock recommendations.