“Finfluencers” Regulations in India in 2024 – If you are one – Know more

Being finfluencers is a position of authority. Handling it responsibly is crucial

Did you ever imagine a time when social media posts would be regulated by an authority as big as SEBI?

Thanks to the drastic growth of the digital era, which has led to social media taking over most of our leisure time today exposing us to various opportunities that were unheard of.

Statistics show that, as of January 2023, 32.8 per cent (467 million of 1.42 billion) of the Indian population is on social media. An average Indian supposedly spends about 3 hours on social media every day. 

These are enough stats to show how social media has become an integral part of our lives. But, the real issue is around how we use it rather than how much we use it.

Like everything else, social media comes with its boons and banes. While some people use it as a learning platform, few others use it as a stage to portray their talents and gain fame. Topping them all are users who use social media to earn money.

Who are finfluencers?

‘Influencer’ is a familiar term now. These are people with strong social media presence, following and the power to influence the decisions of their followers. We see influencers of all age groups creating content about varied topics, ranging from cooking to finance.

Influencers on social media creating financial content have a special name and are called “Finfluencers” (Finance + Influencers). According to a rough estimate, there are about eight crore influencers in India today, including financial influencers.  

The rising popularity of Indian finfluencers on social media

India is a country with a financial literacy of 27%, which means less than one-third of the population has financial knowledge and the skills required to manage their finances. 

Since finfluencers educate their followers about complex financial topics in simple ways, it becomes easy for social media users to widen their knowledge of finance.

Considering the finfluencers’ position to impact, various financial institutions and other corporate organisations collaborate with them for brand and product promotions.

Finfluencers charge their clients for referrals, posts, campaigns, etc., and their fees go up to as high as ₹ 7.5 lacs per post. The ability to attract followers and monetise their social media handles has led to more and more users turning into financial influencers.

Are the finfluencers’ suggestions genuine?

Finfluencers indeed educate their audience, and there are multiple instances where the followers have benefitted from this knowledge. The concern of authenticity comes in when these finfluencers for the sake of money, start promoting brands and products which do not offer any real benefit for their customers

An increase in such social media scams today has led to the interference of the Securities and Exchange Board of India (SEBI) in this matter.

Let’s look at some recent cases before getting into the details of SEBI regulations.

The first ban

P.R. Sundar, a well-known option trader and financial expert, is a famous finfluencer on social media with over one million subscribers on YouTube. He is one of the first people investigated and banned after SEBI intervened in the social media activities of finfluencers.

Until recently, P.R. Sundar was providing investment advice by selling various advisory packages through his website. The payment received, however, was in the name of a private limited company that fell under the purview of SEBI’s definition of an investment advisory company but was not registered with SEBI.

SEBI has imposed a fine of over ₹ 6 crores and banned P.R Sundar from trading any securities for one year. He is also accused of portraying his profits only and hiding the trading losses on his social media pages.

Part-time option trading and full-time drug peddling

This is a classic case of how misleading social media can be

Ashesh Mehta, a finfluencer on Twitter with his wife, ran a trading company called Bliss Consultants in Mumbai that was unregistered with SEBI.In a recent investigation, the police force has discovered the involvement of the so-called influencer in a ₹ 300 crore drug racket. The couple have now fled the country.

Pump-and-dump and screenshot scams

Multiple other kinds of scams happen on social media.

The pump-and-dump scam is a popular one among the finfluencers.

Influencers buy large quantities of securities that are less liquid and less volatile. These securities are then sold to their followers at a slightly higher price (say ₹ 1 or ₹ 2), with an assurance that the market prices will increase.

For individual investors, the extra money is almost negligible, but the influencer makes a huge profit by applying this strategy with multiple followers.

Screenshot scams are where finfluencers create false pictures that resemble their profit statements. Various cloning apps provide the same format as stock broking applications. Finfluencers use such apps to edit images and portray high profits to attract followers.

SEBI’s Regulations

Apart from taking strict actions against such finfluencers, the SEBI has laid out a set of regulations to be followed while entering into agreements with influencers on social media:

An entity registered under SEBI must not have any kind of dealing with unregistered entities, including influencers on social media. Non-monetary and free collaborations are not allowed, as well.

SEBI-registered entities are not allowed to share any confidential data with unregistered entities.

All finfluencers interested in creating advisory content must register themselves with SEBI or AMFI (Association of Mutual Funds in India).

Influencers registered under these bodies must always disclose their registration details, including disclosure on their social media posts.

SEBI-registered entities must not pay any referral fee on a trailing basis.

If a SEBI-registered entity notices any unregistered finfluencer, it must immediately bring this to the regulator’s notice.

The ASCI (Advertising Standard Council of India) has also made the registration of finfluencers under SEBI mandatory. It also recommends that certified finfluencers disclose all the details related to their certifications.

Conclusion

Is social media a farce? Is it a boon? Is it a bane? These questions are always disputable. The answer to it depends on how an individual uses it. It is of extreme importance for users to use their individual discretions before making any decision based on social media content.

DISCLAIMER: This article is not meant to be giving financial advice. Please seek a registered financial advisor for any investments.