In today's world, where the mantra is 'retire early, retire wealthy',
everyone is trying to maximise their income by trying to have their own
side-hustle or some form of passive income apart from their primary employment.
Leveraging this opportunity, many have self-proclaimed themselves to be
financial experts without formal registration with the Securities Exchange Board
of India (SEBI).
With these people, known as financial influencers or finfluencers (not registered with SEBI) flooding social media platforms with
their advice and comments, their followers stand a large risk of losing their
money due to potentially mistaken or improper advice. Yet another concern is
that unregistered entities may give out biassed advice with the motive of
illicit financial gains.
A prime example is that of Vauld, a crypto exchange company, in which various
highly followed financial influencers such as PR Sundar and Akshat Srivastav had
advised to invest. The company's assets worth 46.4 million dollars were frozen
by India's anti-money laundering agency alleging that the company was
facilitating 'crime derived proceeds' from predatory lending firms, due to poor
KYC norms and mechanisms to conduct background checks on the source of the
The company suspended its customers from withdrawing, trading and
depositing along with filing for bankruptcy. Following this, it was noticed that
various financial influencers pose a credible threat of harming a common man's
wallet, due to the lack of professional knowledge and necessary registrations to
legally provide financial advice.
PR Sundar (banned finfluencer) was alleged to have selectively shared
screenshots of his successful trades, conveniently leaving out his unsuccessful
Under the 'Guidelines for Influencers in Digital Media' by the Advertising
Standards Council of India, an influencer is someone with access to an audience
and the power to affect their purchasing decisions or opinions due to their
authority or relationship with the audience. While providing information or
advice on multifarious financial topics, they also often deal in areas that are
regulated financial sectors with regulators such as:
SEBI, RBI, PFRDA and IRDA.
It is common knowledge that these financial influencers do not do this for free,
they advise in return for referral fees, non-cash benefits, monetary
compensation received from the platform and profit sharing with collaborations
or the underlying products, platforms or services.
When SEBI took notice of some SEBI registered intermediaries or entities relying
on these unregistered entities for the promotion of their products, platforms
and services, it took a stance by passing SEBI's consultation paper on
association of sebi registered intermediaries/ regulated entities with
unregistered entities (influencers), to limit the association of SEBI registered
individuals or entities with unregistered ones.
The paper by SEBI has laid out some objectives and intentions, primarily to
disrupt the model of revenue of such unregistered financial influencers in order
to reduce "perverse incentives" and seeks the public opinion to implement a
restriction on the association of registered entities with finfluencers.
restriction in elaboration states that, no registered individual or entity (or
any related registered party) shall associate with unregistered entities, either
directly or indirectly, whether it is for monetary, non-monetary, promotional or
Further in order to tighten and regulate the secrecy of
confidential information, clause 4.3 of the proposal states that registered
individuals shall not share confidential information and must ensure strict
adherence to the code of conduct(1).
Further, to efficiently implement the same,
the paper also requires that those registered restrain from limiting referrals
from retail clients while adhering to the advertisement guidelines issued by SEBI and take necessary steps for disassociation with unregistered entities.
The practice of ensuring registration in order to curb fraudulence and deception
have been implemented in various other nations as well, apart from India. An
example of the same is the Regulation of Investment Advisers by the U.S.
Securities and Exchange Commission March 2013 released by the U.S Securities
Exchange Commission which states; "A firm that falls within the definition of
"investment adviser" (and is not eligible for one of the exclusions) must
register under the Advisers Act, unless it:
- Is prohibited from registering under the Act because it is a smaller firm regulated by one or more of the states
- Qualifies for an exception from the Act's registration requirement.
All advisers, registered or not, are subject
to the Act's anti-fraud provisions" (2)