The Securities and Exchange Board of India (SEBI) is planning to roll out guidelines to regulate financial influencers aka finfluencers. On the one hand content creators say it is a welcome move, while others are concerned on the extent of regulation.
“While there should be regulation,” said Sharan Hegde, a finfluencer who runs a YouTube channel called Finance with Sharan, “there shouldn't be blanket regulation for all types of financial influencers.”
"Finfluencers should be categorised. Tomorrow if SEBI says that any person who is talking about finance in India needs to have a licence, something (on the lines of what) China did, it will be a violation of the freedom of speech. SEBI should be targeting YouTube creators who are directing their audience to Telegram channels, asking people to invest in a stock. I talk about personal finance and don't get into stock analysis. So, there should be regulation but there should be segmentation of finfluencers," he said.
Concerns over new rules
Hegde said that apart from governing influencers who are giving stock recommendations, no other regulation is required as everything else is educational content.
“Some guidelines will be good which will curb content creation by those who are not well equipped with financial knowledge,” said finfluencer Sushant Bindal, founder of financial education platform Money Monitors.
However, he added that regulation should be limited.
"If SEBI goes overboard with the rules and regulations and makes the entry barrier very high, then it would instead dampen the momentum," said Swapnil Pawar, Founder, Newrl, a public blockchain for decentralised finance (DeFi).
While there are genuine advices by some financial influencers based on detailed analysis and research, at times it may simply be with the objective of influencing or gaining from merely endorsing a company or stock. "Determination of the category in which the advice falls in, may be extremely challenging and would require extensive analysis of facts," said Saurabh Tiwari, Partner, DSK Legal.
“We hope that SEBI can tread the fine line between necessary regulations and overbearing clamps on this,” said Pawar.
There are 100,000 to 150,000 paid content creators in the finance category, said Aaditya Goyal, Co-founder of fintech start-up Moneyyapp.
"Currently, the finfluencers are on mostly Telegram and YouTube. Once the regulations are in place, the number of financial influencers might see a drop, but more people will be able to attain affiliation to do proper business," he added.
Hegde said that if the onus to create content on finance is put on the 1,300 registered investment advisors in India, then that will be a huge step backward for financial literacy in India. "These people with licenses will not create content for people, and if they do they may not be able to do so as effectively as finfluencers,” he explained.
He said that SEBI's announcement of the new guidelines for financial influencers is a matter of concern as it is a 'black box' now. "This is a new space and cannot be done unilaterally."
Content creators are looking forward to working with the government on the new guidelines for financial influencers as they think the move is in the right direction. "The intent to regulate this space is good but the regulations should not be strict and should revolve more around disclaimers," said finfluencer Ayush Shukla.
Stricter rules
On the contrary, some influencers and legal experts said that strict action is needed against those not ensuring due diligence.
"There has been a spurt in the number of online influencers in India doling out financial and investment advice even though they may not be qualified to do so. And because of these creators, people might stop trusting those who are providing well-researched and good content. Hence, regulation is important,” said finance content creator Bhanu Pathak.
"Every financial influencer should share the source of information along with the piece of content they are sharing. Instead of giving advice on 'where to invest', influencers should give advice on 'how to invest'. Investment advisory should only be done by qualified people," said finfluencer Neha Nagar.
She said that many young investors today are looking for shortcuts to make money, which has given rise to many fake finfluencers taking advantage of such people.
Financial influencers should ensure diligence before endorsing a product, requiring a minimum investment by the creator concerned, said Paras Parekh, Senior Partner, Parinam Law Associates. "Financial influencers should demonstrate no other ties or connection (other than minimum investment) to any investment product. Having a penalty structure for malpractices and fraud could be a good start," he said.
Globally, countries like Australia have regulated financial influencers.
"In Australia, financial influencers run the risk of being awarded a jail sentence of up to five years if they violate laws on financial advice. Earlier this year, the Australian Securities and Investments Commission (ASIC) said that financial influencers require a licence to give such advice," noted Suvigya Awasthy, Associate Partner, PSL Advocates & Solicitors.
He added that European Securities and Markets Authority (ESMA) has opined that investment recommendations on social media platforms are subjected to the provisions of the European Union (EU) Market Abuse Regulation.
Taking cue from global regulations, rules for financial influencers should not just be restricted to disclaimers, said former Chief Manager of Kotak Mahindra Bank, Shavir Bansal, who runs a YouTube channel on financial regulations called BeKifaayati. "Regulations should be more comprehensive," he said.
Bansal expects SEBI's guidelines to start a trend of financial advice coming from only qualified professionals.
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