Is it time to regulate financial influencers?

The rise of the finfluencer
There’s a lot more going on on social media platforms these days than sharing messages, family photos, and videos. It has grown beyond being a platform for light-hearted conversations.

Users increasingly rely on it for news, lifestyle hacks and especially financial advice – the trickiest of them.

Hanging on to demand, influencer marketing has exploded with millions of subscribers. The meteoric rise in the markets after the pandemic has also led to the rise of this new phenomenon.

Influencers, especially in finance, have a huge impact on an individual’s investment decisions. Core content from Financial Influencers includes educational videos on the economy and markets, stock tips, and other personal finance related advice.

A financial influencer or finfluencer may not be sufficiently qualified or a registered investment adviser to provide advice to the public. But millions of subscribers still buy the content because of its simplicity. These influencers break down confusing financial jargon into simple terms and explain it to the layman.

Registered investment advisers are authorized by the market regulator to advise clients on financial matters. India has about 1,300 registered investment advisers.

Financial influencers, while providing some degree of financial literacy, pose risks to the financial stability of individuals. This can be through paid partnerships, advertising, conflicts of interest, etc.

Brands often use influencers to advertise their products or services. These include investments in mutual funds or crypto platforms or even IPOs, where influencers review the prospectus to get the attention of retailers.

Many newbie investors, who enter the markets with the idea of ​​making money on a whim, may be vulnerable to this content from financial influencers. This is not the case for registered investment advisers, as they are required to disclose any conflict of interest to the regulator.

The regulatory dilemma

The rise of end influencers has created a regulatory dilemma for the Securities and Exchange Board of India (SEBI) with a growing investor base in the country. In the September quarter of this fiscal year, India had about 102.6 million demat accounts. About 41 million unique investors invest in mutual funds in March this year.

Who regulates finfluencer?

Currently, no Sebi regulations apply to financial influencers. However, the Advertising Standard Council of India (ASCI), a voluntary self-regulatory organization, prescribes that prior and visible disclosures must be made by influencers about brand collaborations, advertisements, paid partnerships or sponsorships for all these messages on all platforms. It also asks influencers to do their due diligence. ASCI guidelines are not legally binding on influencers.

Put the numbers in a table

There has been some decrease in breaches by financial influencers, particularly with regards to promotional content about crypto-assets. In FY22, there were a total of 415 instances of influencer and celebrity violations in finance and cryptocurrency-related content. Of these, 43 were related to finance, while 372 were related to cryptocurrency promotional content. In the first half of the current fiscal year, ASCI observed a total of 71 breaches in such cases – 15 being related to finance, while 56 related to cryptocurrencies.

The rampant nature of investment advice flooding social media has caught the attention of regulators around the world who already have their hands full. In an increasingly digital age, according to a survey by a digital marketing institute, 70% of teenagers trust influencers more than traditional celebrities and 86% of women use social media for shopping advice .

Put finfluencers under a regulatory net

According to a report by Business Standard, Sebi is investigating ways in which these finfluencers can be brought under the regulatory net. According to an official, the regulator is trying to find a solution by which at least those who cash in by giving advice on social networks are subject to regulation. Earlier this year, Sebi cracked down on celebrity advertising for cryptos. Sebi said that no “prominent public figure including celebrities, sportspersons should endorse crypto products and advertising disclosure should also talk about possible violation of laws.”

However, it is difficult to suppress thousands of financial creators who regularly produce content, although other countries have some form of regulation in place.

In Australia, influencers face up to five years in prison if they provide unlicensed financial advice. Similarly, the European Securities and Markets Authority issued a public statement on investment recommendations made on social media, clarifying the definition of investment recommendations, how to post them correctly on social media and outlining the consequences of a violation of the EU Market Abuse Regulation.

Regulators in China and Singapore have also clamped down on the promotion of cryptocurrency-related products and issued guidelines for influencers.

Talk to Trade standard, Mayank Mehta, Partner, Pioneer Legal says it’s high time to regulate financial influencers. Sebi must find ways to ring influencers despite his delicacy

Experts say finfluencers, despite promoting financial literacy, pose certain risks to consumers, as seen in the case of the crypto crash. Guidelines around influencer marketing are also evolving in various jurisdictions. In India too, influencers have caught the attention of the regulator. From the creators’ perspective, there could be collaborations with financial experts in the field to reduce risk.