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Fininfluencers | Existing regulations enough to rein in fraudsters

For registered advisers, no further regulation is required. For those who are not registered, better enforcement will be a deterrent

December 09, 2022 / 10:45 AM IST
Representative Image.

Representative Image.

The Securities and Exchange Board of India (SEBI) is rightly concerned about the rapid and unregulated growth of financial influencers (aka fininfluencers). These range from those who claim to be well-meaning financial educators to downright frauds. Indeed, other financial regulators such as the RBI, the IRDAI, and the PFRDA too should have cause to worry.

However, the kneejerk reaction of issuing more and detailed regulations should be avoided. India already has ample regulations to deal with this challenge. For this, it is important to make a distinction between the army of fininfluencers trying to make a mark out there, and those outright fraudsters preying on the gullible investor/trader.

Fininfluencers are not a new phenomenon. What has led to a spike in their numbers is Internet penetration across the country which has meant that a person at a remote corner of the country has a level playing field with those in urban centres. Even Internet-based fininfluencers have been around for a while now. Starting from blog writers, who graduated to ‘free’ websites of their own, which in turn gave way to their migrating to social media platforms such as Twitter, Facebook, Instagram, YouTube, etc. To be fair, it brought out brilliant talents from unexpected places. The fraudsters were also quick to hop on.

The fake mutual fund sites which SEBI recently has expressed concern about are just one example of the fraud. There are also countless social messaging (telegram, discord, etc.) groups that claim to offer ‘hot tips’. They capitalise on greed of easy money, and attract subscribers through various means. One way they raise money is through monthly subscriptions, which is graded upwards depending on nature of recommendations. SEBI’s site is replete with orders against such persons. The other mode is to offer a ‘free lunch’ by hot tips of securities claimed to be undervalued. Except that soon after the purchase, the market for the security vanishes, and can be sold for a fraction, if at all.