SEBI to bring regulations for financial influencers (Finfluencers)
No Comments
SEBI to bring regulations for financial influencers (Finfluencers)
Subject :Economy
Section: Capital market
| In News: SEBI has asked finfluencer P R Sundar to deposit 6 crore as disgorgement for selling investor courses without SEBI approval, and has been banned for a year from the securities market. |
Key Elements that regulation should address:
- An unambiguous definition of financial advice: In the absence of a holistic definition of financial advice, it has been difficult to regulate activities of finfluencers. There is also a need to differentiate between opinion and advice. At present SEBI provides following two Regulations regarding financial advice:
- An advice relating to investing whether written, verbal or through any other means of communication for the benefit of the client, has been termed as ‘investment advice’ under Regulation 2(1)(l) of the SEBI (Investment Advisers) Regulations 2013. But the regulation explicitly exempts advice given through social media by finfluencers.
- Another category of advice is covered under SEBI (Research Analysts) Regulations 2014 (SEBI Research Analyst Regulations) through research report under Regulation 2(1)(w). Unfortunately, financial advice from a finfluencer will be excluded from its ambit, as a research report can be provided only by a certified research analyst by SEBI which requires a post graduate degree from National Institute of Securities Markets under Regulation 7(1)(iii). Hence, no Indian legislation or guidelines provide a concise definition of ‘financial advice’ that is applicable over the information provided by finfluencers.
- Mandatory disclosures:
- SEBI requires registered research analysts and financial advisors to disclose their financial interest and any form of compensation received from the company whose financial products and services are being advertised. Finfluencers too need to be mandated to disclose such arrangements.
- Additionally Finfluencers should disclose whether they hold a particular security on which they are making a recommendation.
- Unsolicited Advice: Social media allows anyone to give their opinion on a subject. But just having a large following does not give one the right to give misleading advice. Hence unsolicited advice needs to be curbed.