Sebi lists out seven steps to regulate finfluencers and keep investors' trust

Varshney noted the challenge of regulating the system if "everyone is violating the traffic rules." The solution, he believes is enforecement.

The regulation of finfluencers is required in the capital markets to ensure the trust that has been created over the years is retained, Sebi's whole-time member Kamlesh Chandra Varshney said at FICCI's 21st Annual Capital Markets Conference in Mumbai on August 2.

"Do we concern ourselves with entities who are not registered with us, who are outside the ecosystem? The answer is, if we want to retain the trust that has been created over the years, is there a risk of losing that trust. As she said, once trust is broken, difficult to rebuilt it," Varshney told audiences at the conference.

Currently, there are around 11.5 crore unique investors but only 1,345 Research Analysts (RA) and 984 Investment Advisors (IA). "This is not enough," said Varshney, adding that if we want investors to keep their faith, we need more RAs and IAs guiding them properly.

Varshney noted the challenge of regulating the system if "everyone is violating the traffic rules."  The solution, he believes is enforcement.

"If you want a (more regulated system) there has been more enforcement, where there are more awareness campaigns, there is a value system to wait for traffic lights,", Varshney said, adding that there is a need to define a proper strategy.

Currently, there are different parts of this strategy. One was a separate platform to collect RA and IA fee from their clients. This, he explained can help filter out wrong people from the system. "We have seen many unregistered influencers who take money from the people and disappear. We cannot catch them with the manpower Sebi has. Therefore, we can build a system, where the investor is assured that if he goes through a system, then he is making payment to a right person," Varshney explained.

The second part of the strategy is working with the social media platforms to report unregistered influencers.

The third part of the strategy is through association with finfluencers. The idea, he explained, was to dry out the revenue of unregistered IA. "If a registered entity associates with these finfluencers, then there will be a problem," he added.

Varshney added that there will be a consultation paper that will be coming out soon about relaxations based on the suggestions that came from working group. "In that consultation paper, only Is have to be dotted and Ts have to be crossed. It may come out on Monday," he said.

The fourth strategy is change in policies and regulations for removing hurdles for RAs and IAs.

Fifth strategy Varshney noted is summary proceedings. "If you find that they are violating law, then are you going to have procedures that will take months and years. So, summary proceedings which are for violations that are very straightforward, no explanation needed. These are open and shut cases," he said.

On performance validation, Varshney notes that this is going to be the big thing. "If some players are abled to validate their performance, then they should be able to advertise that. Right now, everyone is advertising without validation," he said.  NSE and the Sebi are currently working on a Performance Validation Agency (PVA). "It will be outstanding. Something that other countries could learn from us," he said, adding that everything will be transparent, and low on fee.

The sixth part of the strategy is risk-based enforcement for which Vashney noted that they will be using technology for enforcement.

The final and most important strategy is investor education.