Supreme Law News

Are Finfluencers illegal in India?

In recent years, a distinct and rapidly growing group on social media, known as “finfluencers” (short for “financial influencers”), has emerged, capturing the attention of retail investors across India. These individuals offer advice and share insights on various financial topics—from stock market investments to personal finance and insurance—through social and digital platforms. But while finfluencers have become a popular source of information for many, their rise has sparked serious concerns among market regulators, particularly the Securities and Exchange Board of India (SEBI).

Retail investors, often seeking quick and accessible guidance to navigate the complexities of the financial markets, are a primary audience for these finfluencers. However, SEBI and other market regulators worry that the disseminated advice is only sometimes transparent, prudent, or backed by adequate research, qualifications, or expertise. This article explores SEBI’s attempts to regulate the activities of finfluencers and the measures it has approved so far.

SEBI’s 2024 Approach: A Step Forward or a Step Backward?

Recently, SEBI addressed the issue of finfluencers head-on and has decided to regulate finfluencers on several fronts, including obligations for registration and disclosures, penalties for misleading claims, and restrictions on associations between regulated entities and unregistered finfluencers.

One of the key takeaways from SEBI’s recent decisions is the stringent restriction imposed on SEBI-regulated entities and their representatives from associating with anyone providing direct or indirect investment advice, recommendations, or making explicit claims about securities returns. This prohibition extends to various forms of associations, including financial transactions, client referrals, and even sharing of IT systems.

However, the restriction does not apply to individuals authorized by SEBI to engage in such activities, nor does it extend to those solely involved in investor education without making specific financial claims. Additionally, associations through certain digital platforms with mechanisms to prevent the misuse of advice or performance claims are exempted.

The Finfluencer Dilemma: Investment Advisors in Disguise?

Under the SEBI (Investment Advisers) Regulations, 2013 (IA Regulations), an “investment adviser” is defined as any person who provides investment advice for a fee. While finfluencers typically earn revenue through ad revenue, endorsements, and sponsorships rather than direct payments from their audience, many also offer personalized investment courses for a fee. These courses often offer subscribers a more dedicated approach, blurring the lines between content creation and regulated financial advisory.

A recent SEBI order in the case of Mohammad Nasiruddin Ansari, also known as “Baap of Chart,” sheds light on this issue. The order dealt with complaints against the popular finfluencer for allegedly inducing investors to subscribe to his courses through his social media influence, offering personal guidance and support in exchange for subscription fees. SEBI concluded that these activities fall within the “investment advice” definition under the IA Regulations, thus making such finfluencers subject to regulation.

SEBI’s new rules essentially require regulated entities to engage only with influencers who are officially registered or permitted by SEBI to provide investment advice. This could compel many unregistered influencers to seek SEBI registration to maintain their revenue streams through sponsorships from regulated entities.

The Unseen Costs: Who Bears the Burden?

The new obligations imposed on regulated entities could significantly increase their diligence requirements. SEBI’s directives require these entities to avoid any form of association with finfluencers, not just on social media but in any capacity. This means that regulated entities like stockbrokers and mutual fund companies must exercise extreme caution while onboarding customers, ensuring that they do not inadvertently engage with a finfluencer who is not registered with SEBI.

This level of vigilance is particularly challenging when influencers operate on platforms that offer anonymity, such as Telegram or Reddit. Moreover, verifying whether a customer is an influencer and ensuring they are SEBI-compliant could lead to higher operational costs for these entities, potentially affecting their commercial viability.

As SEBI continues to refine its approach to regulating finfluencers, the question remains: Are these measures protecting retail investors, or are they creating new hurdles that could drive financial advice further underground? The answer might depend on how effectively SEBI balances investor protection with the realities of the digital age.

Finfluencers are not illegal in India, but their activities are now subject to stricter regulations and oversight by the Securities and Exchange Board of India (SEBI). Here's what this means:

1. Registration Requirement: If an influencer provides investment advice or makes specific financial recommendations, they may need to register with SEBI as an investment adviser. This registration ensures they meet certain regulatory, professional, and ethical standards.

2. Regulated Associations: SEBI has prohibited SEBI-registered entities (like stockbrokers, mutual funds, etc.) from associating with unregistered finfluencers who provide investment advice or make claims about returns. This means that if a finfluencer wants to work with these entities, they must either refrain from offering advice or get registered with SEBI.

3.Compliance with SEBI Standards: Finfluencers who wish to continue offering financial advice or partnering with regulated entities must comply with SEBI's regulations. Failure to do so could result in penalties or legal action.

In summary, finfluencers can still operate, but they must be careful to adhere to SEBI's guidelines. If they engage in activities that qualify as giving investment advice without being registered with SEBI, they could face legal consequences. Therefore, while not illegal per se, the regulatory environment for finfluencers has become much stricter, and non-compliance could lead to legal issues.

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Dr. Ajay Kummar Pandey

( LLM, MBA, (UK), PhD, AIMA, AFAI, PHD Chamber, ICTC, PCI, FCC, DFC, PPL, MNP, BNI, ICJ (UK), WP, (UK), MLE, Harvard Square, London, CT, Blair Singer Institute, (USA), Dip. in International Crime, Leiden University, the Netherlands )

Advocate & Consultant Supreme Court of India, High Courts & Tribunals.