 "Sebi has decided to stop finfluencers, many of whom make vast sums of money through social media, from doling out advice under the guise of investor education. Reuters")
The Securities and Exchange Board of India (Sebi) is cracking down on financial influencers (finfluencers).
The market regulator has issued a circular barring such individuals from using live stock prices while giving advice to their followers on the stock market.
In August, it was reported that Sebi had removed around 15,000 websites by unregulated financial influencers.
But what do we know about the crackdown? What could be the impact?
Let’s take a closer look:
What we know about the crackdown
As per CNBC, the market regulator has ordered unregistered advisors to use three-month-old prices while instructing their followers.
This will stop finfluencers from doling out investment advice under the guise of investor education, the market regulator has mandated that any unregistered advisor will have to use three-month-old prices to make their point.
“Such person (someone who is engaged solely in education) should not be using the market price data of the preceding three months to speak/talk/display the name of any security including using any code name of the security in his/her talk/speech, video, ticker, screen share, etc. indicating the future price, advice or recommendation related to security or securities,” Sebi said in a circular as per Economic Times.
As per _CNBC ,_Sebi has also ordered finfluencers from providing advice or any recommendation, directly or indirectly on specific stocks, without its permission.
The market regulator has also warned finfluencers from making any claims about getting return on stocks or their performance – directly or indirectly – without its permission.
Sebi has also barred registered entities from paying finfluencers for direct or indirect ‘association,’ according to CNBC.
“It is the responsibility of the persons regulated by Sebi to ensure that any person associated with them or their agent, directly or indirectly, does not engage in any of the abovementioned two prohibited activities, directly or indirectly,” Sebi added in the circular.
As per Mint, these restrictions are also applicable to advertisements, branding and promotional material through third-party marketing agencies.
These regulations came into force on August 29, 2024.
“Persons regulated by the Board and their agents have been advised through a circular dated October 22, 2024, to terminate their existing contracts, if any, with persons engaged in any of the above-mentioned two prohibited activities, directly or indirectly, within three months from the date of issuance of that circular,” the regulator said.
Sebi warned that any registered entity found contravening its circular could face a penalty or have its license suspended or even revoked.
Why is Sebi doing this? What could be impact?
As per Mint, Indian authorities have grown anxious about the rise of these finfluencers.
Not only are they not regulated by Sebi, it is also difficult to find those giving real advice rather than peddling rumours and innuendo.
Worse, many of these finfluencers have gained many followers on social media platforms such as X and Instagram.
As per Business Today, some finfluencers have millions of YouTube followers – more than Zerodha, Groww, Upstox and 5Paisa.
Many of these finfluencers are minting vast sums of money.
“Once you have got more than a million followers and are making videos on a weekly basis while also engaging with broking firms, the monthly earnings can be anywhere between Rs 15 lakh and Rs 30 lakh,” a broking firm executive told the outlet.
Even fund managers and asset management firms, who are regulated by Sebi, are turning to these finfluencers to bring in new customers.
“The top finfluencers can charge anything between Rs 5 lakh and Rs 10 lakh per video to appear on the channel of a firm. At times, these firms also enter into annual contracts for a specified number of videos, and the fee could go up to a crore,” the executive added.
But many investors are losing out.
Sebi whole-time member Kamlesh Varshney in August told Mint that finfluencers were “…misguiding investors and losing money. We have been getting a lot of complaints from investors. Then we work with technological platforms where unregistered people give advice.”
“More than 15,000 content sites have been taken down by them in the last 3 months after we referred to them.”
As per Moneycontrol, this could well be a deathblow for many finfluencers.
“This signals the end for various finfluencers who run unregistered investment advisories under the garb of stock market education,” the piece noted.
With inputs from agencies