Market watchdog Sebi will be finalising a draft discussion paper in a month or two to formulate rules and guidelines to regulate the mushrooming number of unregistered financial influencers or “finfluencers” who offer investment advisors to the public.
The statement from Sebi chairperson Madhabi Puri Buch comes on the heels of the income tax department reportedly sending notices to top 35 social media influencers for not paying taxes worth crores of rupees and after last week's searches on the top 13 Youtubers in Kerala for similar offences.
"We are crystalising a discussion paper to regulate financial influencers. The paper should be ready for public comments in the next couple of months," Ms. Buch told reporters late last night after a marathon board meeting wherein the board approved a rash of regulatory measures including halving of the share listing time to three days the present six after an IPO.
The board also decided to tighten the disclosure norms for large foreign portfolio investors.
Explaining the regulatory position, the chairperson said, "We've no problem if someone chooses to educate investors/would-be-investors about the market and investments. But there is a serious problem if they are offering unsolicited investment advice and are not registered with the Sebi."
There are numerous unregistered finfluencers who are manipulating the market and offer qualified advice to the gullible public and earn huge money by way of commission from these platforms on one hand and on the other from the market by transacting on those stocks they talked up or talked down.
With the number of such people thriving on social media platforms like Youtube, Instagram, Telegram, WhatsApp and Twitter in recent years, Sebi has been cautioning the public against falling into their advisory traps on one hand and also hinting at bringing out regulations to contain their free-run.
After the February 2023 board meeting Sebi made its mind clear for the first time when its whole-time member Ananth Narayan Gopalkrishnan had said, "We'll come out a discussion paper seeking inputs for making effective measures to control unsolicited financial and market advice from social media influencers and also from unregulated investment advisors. After inputs from market participants, and other stakeholders, we'll issue guidelines to rein them in.”
There is also the issue of unregistered investment advisors, who pose greater risks to gullible investors. More importantly, we see examples of misuse of their Sebi registrations by even some registered advisors, he had noted.
The need for guidelines for social media influencers on financial matters has been abuzz lately with the mushrooming of application-based content, where popular influencers promote a particular asset class without a proper licence or knowledge to do so.
Earlier, Sebi had clamped down on some WhatsApp groups and Telegram channels, which were used to leak key market-moving data. This led to many large companies stopping their earnings pressers which were normally held on weekdays to Saturdays and also altogether stopping media interactions.
Sebi has been planning to direct brokers, mutual funds to limit use of financial influencers to curb the spread of financial advice via social media advertising and marketing campaigns through such influencers.
Since January 2022, Sebi has been saying it would come out with regulations to tame the so-called financial influencers, it has not yet issued anything but has been acting selectively on such manipulators.
For instance in January 2022, it found market abuse through stock recommendations using Telegram. On March 2 this year, Sebi cracked down on Youtubers and barred about 44 entities from the securities market in an interim order passed for manipulating prices and making illicit gains.
Again, as late as May 27 this year, Sebi fined ₹6.5 crore on finfluencer P.R. Sundar and banned him from the market for a year, for alleged violations of investment adviser norms.
Mr. Sundar, who is a Youtuber and options trader, has settled the case after paying the fine. This action marks the first instance of action taken against a finfluencer (financial influencer) by the market regulator.
Sebi's investigation revealed that Mr. Sundar was operating the website prsundar.blogspot.com where he offered various packages for providing advisory services. Payments for these services were collected through a payment gateway linked to the bank account of Mansun Consultancy, of which Mr. Sundar is a co-promoter.
The case, dating back to 2022, involved Mr. Sundar, his company Mansun Consulting, and Mangayarkarasi Sundar, his co-promoter. They are strictly prohibited from buying, selling, or dealing in securities for one year from the date of the settlement order. Mr. Sundar also did not have a Sebi registration.
As part of the settlement, they agreed to pay ₹46.80 lakh (₹15.60 lakh for each Mansun Consultancy and two of its directors) and disgorge ₹6 crore, which includes the profits earned from the advisory services amounting to ₹4.6 crore and the associated 12% interest.
Recently, finance minister Nirmala Sitharaman also addressed the concerns related to financial influencers and cautioned about the dangers posed by Ponzi apps offering financial solutions. The Advertising Standards Council has laid down guidelines for influencers who can influence purchasing and investing decisions.
