In the wake of the COVID-19 pandemic, social media has become a go-to source for financial advice, especially for retail investors hoping to capitalize on the stock market’s fluctuations. A new wave of financial influencers, or “finfluencers,” has emerged, offering quick and easy-to-understand content on investments, stocks, and personal finance. Unlike registered advisors, finfluencers are not licensed or professionally qualified, yet many retail investors trust their recommendations. 

This shift poses significant risks, as many finfluencers engage in practices that can mislead investors, from promoting financial products for personal gain to endorsing stocks that may not align with sound investment principles. In response to these growing concerns, the Securities and Exchange Board of India (SEBI), in collaboration with the Advertising Standards Council of India (ASCI), has introduced new rules to regulate finfluencers and protect consumers from unreliable advice. 

On June 27, 2024, SEBI announced these new regulations to curb the influence of unqualified financial advice on social media, aiming to safeguard investors and maintain the integrity of India’s financial markets. 

Finfluencers in India have largely gone unregulated, aside from the ASCI guidelines for influencer advertising. SEBI’s move to regulate finfluencers began after discussions among global financial regulators led to the publication of the Report on Retail Distribution and Digitalization. The report urged regulatory measures to address risks from digital retail marketing, like influencers promoting firms without proper disclosures. It recommended that firms engaging influencers be responsible for accurate information.  

The Legal Framework 

SEBI has responded to the overflow of unsolicited financial guidance on social media by unveiling a consultation paper on August, 2023 and recently by approving these norms in its board meeting held in June, 2024. This move aims to transform financial influencers into more reliable sources of information because “encountering unsolicited financial advice has become a regular occurrence for social media users. It exposes people to different levels of influence, leading some to ignore it while others heed the insights shared by these finfluencers and this susceptibility can steer individuals toward misguided financial decisions, posing risks to their financial well-being.” 

The ASCI defines influencers as individuals who can impact their audience’s opinions about products or services due to their authority or relationship with followers. To protect consumers from misleading advertisements, ASCI guidelines require influencers to disclose any material connections, such as compensation or incentives, that could influence their endorsements. 

For those promoting banking, financial services, or insurance, ASCI guidelines recommend registration with SEBI, ensuring transparency in their financial promotions. However, these guidelines are voluntary, and influencers are not obligated to follow them. To address this, SEBI’s new regulations aim to enforce stricter controls on finfluencers, prohibiting unregistered influencers from advertising financial products. This will significantly impact finfluencers’ revenue models and strengthen investor protection by limiting unregulated financial advice. 

SEBI’s regulatory framework requires finfluencers to register as investment advisors or research analysts, adhering to established standards under SEBI regulations. This ensures that only qualified individuals provide financial advice, reducing the risk of misleading information. However, the distinction between finfluencers and registered advisors remains unclear, raising concerns about how these rules will affect investor education efforts. The Ministry of Information and Broadcasting, in collaboration with the Ministry of Electronics and Information Technology, is attempting to regulate online content through rules like the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 and the draft Broadcasting Services (Regulation) Bill 2023. Under this framework, financial influencers could be required to follow a new program and advertisement code, along with content evaluation and disclosure norms, as outlined in Section 20 of the draft bill. 

If implemented, financial influencers would need to consider multiple regulatory frameworks, including SEBI’s guidelines, and moderate their content accordingly. The intersection of these frameworks highlights a rigid regulatory environment where various authorities oversee both digital and financial content. This raises important questions about internet regulation and how far such controls can extend. How ministries and sectoral regulators will work together to moderate this space remains to be seen. Additionally, SEBI’s recent actions, including consultation papers and orders against influencers, have faced resistance from finfluencers, who argue that these steps amount to regulatory overreach. SEBI, however, contends that many of these unregistered influencers lack the necessary qualifications and fail to disclose conflicts of interest, making regulatory action essential for protecting investors. 

Conclusion 

In conclusion, SEBI’s actions come at a critical time in the rapidly evolving digital media landscape, as government bodies prepare to introduce stricter regulations on content moderation. By aligning its efforts with global market regulators, SEBI aims to balance the benefits of social media’s reach in promoting financial literacy with the need to protect investors from misleading advice. The board emphasized the importance of investor responsibility, urging individuals to verify the authenticity of financial influencers before acting on their advice. As SEBI continues to refine its approach, the future of fair internet use and the integrity of financial advice will depend on careful, thoughtful regulations. 

Disclaimer: This article is for informational purposes only and does not constitute legal advice. The content may not reflect the most current legal developments and is not guaranteed to be accurate, complete, or up-to-date. Readers should consult a qualified legal professional before taking any action based on the information provided. The authors and publishers disclaim any liability for any loss or damage incurred as a result of reliance on this article. This article does not create an attorney-client relationship.