SEBI has released consultation papers to deal with the unregulated market advice that finfluencers give. Through its paper, SEBI has tried to reduce the association between a SEBI-registered entity and an unregistered entity including finfluencers. As per SEBI, the objective is to not only reduce this association but also disrupt the revenue model as far as these unregistered finfluencers are concerned.
With this in place, how do finfluencers now earn revenue? There are referral fees for usage of products, platforms and services. There are non-cash benefits like fee usage, products or services, compensation received from the social media platforms. There is also product sharing when it comes to the product channel or service.
SEBI has highlighted five points that need to be strictly adhered to.
1. No SEBI registered entity will have associations with any unregistered finfluencer. This covers all monetary and non-monetary benefits, all agents, representatives of registered entities, all promotions of products and services relating to the financial sector.
2. SEBI registered entities shall not share any client related info with unregistered finfluencers or people from the finance community.
3. SEBI registered entities shall not pay any referral fees on a trailing commission basis.
4. Registered finfluencers will have to display their registration number, contact details, investor grievance helpline on their posts.
5. All disclosures from these registered finfluencers will have to be displayed very clearly on all of their posts.
What the SEBI paper is talking about right now is the link between the registered and unregistered entities. However, there has been no mention of finfluencers who promote content for their own interest or for the interest of another unregistered entity.
“Influencers not registered with the relevant financial sector regulator may not have the requisite qualifications or expertise on the subject. Worse, not being subject to a financial sector regulator’s code of conduct, they may not disclose any potential conflict of interest such as their association with or interest in the products, services or securities that they promote,” said SEBI.
In short, if you get money to put out a post and if you don’t mention that it’s a paid promotion then there’s a problem. According to Sandeep Parekh. Founder, Finsec Law Advisors said that SEBI’s consultation papers segments finfluencers into two buckets – registered and unregistered. “It does the exact opposite of throwing the baby out with the bath water. It throws out only a little bit of the bath water.” Said Parekh in a CNBC-TV18 panel discussion. According to him, 99.99 percent of finfluencers are not going to choose to be registered with SEBI. They won’t want to follow the scrutiny of a regulator. Secondly, a lot of the issue is just conflicted. Finfluencers are getting paid from A or B parties without any disclosure. “SEBI will regulate it in a thoughtful manner, which it is capable of doing instead of trying to regulate lakhs of people,” he added.
Radhika Gupta, MD and CEO, Edelweiss Asset Management said that she believes SEBI is doing the right thing by introducing these guidelines and that they are doing it in the best way they can. “You can’t go out and regulate lakhs of people. You can’t attack freedom of speech. The best thing you can do is take your registered intermediaries, whether it’s mutual funds, brokers, etc and say that you guys are regulated and you should have nothing to do with this,” said Gupta.
There are 114 odd crore mobile users in India today and around 40 crore social media users. There are only 8-10 crore stock investors and mutual fund unique investors are around 3.5 crore. As per Mohit Gang, CEO, Moneyfront, if the finance sector with all its might tries to bring the mutual fund investor base to 40 crores, it is nearly impossible. That’s where the finfluencer category comes in. They are able to get new users to adopt financial products. Finfluencers should be allowed to detail the merits of doing SIP’s investing in mutual funds, etc. However, they should not be allowed to recommend schemes, show derivative strategies, stock calls, etc. “To educate investors to invest in financial products, that’s where we need them as a community,” said Gang.
The Advertising Standards Council of India (ASCI) too has revised its influencer advertising guidelines to place additional responsibility on advertising content of health and finance influencers. ‘Finfluencers’, operating within the BFSI realm, can now offer investment-related advice only after being registered with the Securities and Exchange Board of India (SEBI). Their registration number must be prominently displayed alongside their name and qualifications. For other financial advice, influencers must possess appropriate credentials such as a license from the Insurance Regulatory and Development Authority of India (IRDAI), be qualified as a chartered accountant, hold a company secretaryship, etc. Moreover, they are expected to adhere to all disclosure prerequisites as stipulated by financial sector regulators from time to time.