To relevantly quote Philip Fisher - "The stock market is filled with individuals who know the price of everything, but the value of nothing." This quote is validated by the recent unregulated and rampant activities of financial influencers in the digital domain. These financial influencers, armed with their charisma and digital prowess, have gained considerable traction, attracting a significant audience seeking guidance on wealth management, investment opportunities, and personal finance. While their impact has been instrumental in enhancing financial literacy, their unregulated presence poses both benefits and risks, prompting a pressing need for comprehensive regulatory frameworks.
Recent Developments
In the latest development sparking debate about financial influencers once again, the Securities and Exchange Board of India (Sebi) took action against financial influencer Mohammad Nasiruddin Ansari, popularly known as Md Nasir on social media and operating under the alias 'Baap of Chart'. Sebi prohibited his access to the securities market and mandated him to return Rs 17.2 crore for engaging in unregistered investment advisory services.
'Baap of Chart' boasts a significant online presence with more than 443,000 subscribers on YouTube and 83,000 followers on X (formerly Twitter), where he has been offering trading advice and courses.
According to Sebi, Nasir presented trading recommendations as part of his paid 'educational courses', allegedly deceiving clients/investors into purchasing his workshops through misleading or false information.
Sebi's investigation revealed that despite claiming to yield profits ranging from 20 to 30% with a 95% accuracy rate, Nasir incurred a net trading loss of Rs 2.89 crore from January 2021 to July 2023.
Sebi demanded that Nasir and two others deposit the impounded amount in an escrow account within 15 days and refrain from diverting any funds raised from investors. Additionally, they were instructed to remove all advertisements and promotions for the courses.
Sebi highlighted that investors and clients were promised personalised guidance and support upon payment for the services, which allegedly remained unfulfilled.
In a similar case, on May 25th this year, the Securities and Exchange Board of India (Sebi) sent a firm message to P.R. Sundar, a prominent figure with more than one million followers on YouTube. Sebi prohibited him from participating in the securities markets for a year, citing allegations of providing unregistered advisory services, specifically daily stock investment and trading recommendations. Additionally, he was instructed to return the fees he had received, totalling Rs 6.08 crore, along with accrued interest.
Major Financial Influencers in India in presently:
Financial Influencer | Subscribers |
Pranjal Kamra | 5.67 Million |
Rachna Ranade | 4.58 Million |
Asset Yogi | 3.72 Million |
Groww | 2.12 Million |
Parimal Ade | 523,00 |
Ankur Warikoo | 3.24 Million |
Current Regulatory Landscape in India for Financial Influencers
Various significant laws and regulations apply to financial influencers in India, including several sections of the SEBI Act of 1992, the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, provisions in the Consumer Protection Act of 2019, and specific clauses within the ASCI Code of Ethics.
Financial influencers might also be subject to self-regulation by industry organisations such as the Investment Bankers Association of India (IBAI) and the Association of Mutual Funds in India (AMFI).
SEBI also recently issued a consultation paper on financial influencer regulation in August 2023, proposing measures that would require influencers to disclose their financial interests, refrain from disseminating false or misleading information, and ensure that their advice is suitable for their intended audience.
While the Reserve Bank of India (RBI) lacks explicit regulations for financial influencers in India, SEBI enforces regulations mandating disclosure of any conflicts of interest by these influencers and requires them to state that they are not registered investment advisors. Violations of these regulations may result in facing laws related to fraud.
The RBI has not taken explicit steps to regulate financial influencers concerning crypto assets or other digital payments. However, the banking regulator in its statements has expressed concerns about the potential risks associated with these products and services, citing their potential threat to financial stability.
Comparing Regulations on a Global Scale
India's regulatory landscape for financial influencers stands apart from that of the United States, the United Kingdom, Singapore, Malaysia, and Australia. The United States has had restrictions in place since 1940 through the Securities Act, while the UK's Financial Conduct Authority (FCA) has been regulating social media usage by financial influencers since 2014. In 2014, the Monetary Authority of Singapore established regulations emphasizing the importance of client privacy, fair market conduct, and safeguarding reputation.
Subsequently, the Malaysian Securities and Investments Commission (MAS) implemented fresh guidelines in 2020 to oversee intermediaries involved in digital payment tokens. In 2021, the Australian Securities and Investments Commission (ASIC) issued an awareness brochure for financial influencers, outlining their legal duties, and those found in violation of these responsibilities have faced enforcement action.
Discussions on Way Forward
It’s worth noting that SEBI in its consultation paper has clarified that without being a Registered Investment Advisor (RIA) and Research Analyst from the regulator, one cannot advise on investments. If we can put it into other words, SEBI wants advisors to have ‘Skin in the Game’ as Forsaking of all risks might lead to rampant proliferation of noisy advice precipitating to chaos in the market. Also, advice which is not based on proper market research, backed by quantitative data might lead investors to the trap of base rate fallacy based on recent trends and frenzies.
There is definitely the fact that content is here to stay and it yields many positive returns with more democratisation of information. However, there needs to be a tightrope walking when it comes to the regulation of financial influencers and content creation.
Experts believe that SEBI should create a separate category under Registered Investment Advisor (RIA) and Research Analyst to grant certification to financial influencers and content creators to give them more credibility. Further, the guidelines released by Sebi for financial influencers have not gained traction among content creators and hardly 50% are aware of it.
There needs to be more awareness among content creators as well as education among consumers so that they can separate the wheat from the chaff. Adding to the troubles of content creators, they say that the registration for an RIA and RA is a tedious and cumbersome process which puts hurdles in the ease of creating content. In the light of this new development, content creators are demanding Sebi to clarify the grounds on which financial influencing online, and content creation can be conducted. In this regard, foreign legislation and existing judicial doctrines can come into play. But, the bottom line is that content creators need to have ‘Skin in the Game’ in their advisory and investment so that they walk the talk. Sebi's prompt intervention and innovation with a code of conduct might be a welcome step in this regard.
The Gist
In conclusion, the recent Sebi actions against unregistered financial influencers reflect the growing significance of regulatory oversight in India's financial landscape. With an evolving regulatory framework and the proposal of a separate category for financial influencers under RIA and RA, the need for enhanced awareness among content creators and consumers is paramount. Clear guidelines and streamlined registration processes are crucial for fostering credibility in the realm of online financial influence. Sebi's proactive stance highlights the essential steps toward ensuring a more responsible and transparent financial advisory environment for financial influencers.
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