Article submitted by Aishwarya Deshpande
- Introduction:
A “financial influencer” or “finfluencer” is a someone who provides information and advice to investors and/or the common people on financial matters, often concerning stock market trading, personal investments such as mutual funds and insurance, mostly via different social media platforms like YouTube, X (previously known as “twitter”), Instagram etc . At the forefront of the emerging “finfluencer” movement are individuals like CA Rachana Ranade and Pranjal Kamra, who have effectively educated millions by presenting financial concepts in an accessible manner. These finfluencers, along with others, are changing how the public engages with financial markets, making investment knowledge more accessible than ever before.
The abrupt increase in finfluencers is mostly attributable to India’s alarmingly low financial literacy rate, which is now just 27%, according to the 2019 study conducted by the National Centre for Financial Education. This creates a demand for clear, concise financial advice, as these videos attract novice investors from smaller towns and cities.
India’s leading finfluencers have become more prominent than traditional broking businesses. As their popularity grows, they are partnering with major securities firms to reach a broader audience of potential investors, strengthening their role in transforming India’s financial landscape.
Nevertheless, the majority of finfluencers are not registered with the appropriate financial sector authorities. This calls into serious doubt about their training and experience. They were not subject to a regulated code of conduct; thus, they are not required to disclose any conflicts of interest or even connections with or financial interests in the goods, services, or securities they promote. Unregulated finfluencers often promote specific products, services, or platforms in exchange for monetary or other forms of compensation. This practice leaves their audience exposed to significant risks, as they may be unaware of the underlying commercial incentives driving the advice. However, SEBI’s latest regulations now explicitly prohibit unregistered finfluencers from providing investment recommendation or making return- related claims. Moreover, SEBI- registered entities must ensure that they do not associate, directly or indirectly, with individuals engaged in such prohibited activities.
In addition, it has been discovered that regulated organizations and intermediaries registered with the Securities and Exchange Board of India (“SEBI”) also use finfluencers as part of their distribution networks.
Guidelines suggested by SEBI for Finfluencers
In order to regulate finfluencers, the SEBI released a consultation paper titled “Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities including Finfluencers” (“Proposed Regulation”). The key objective of the Proposed Regulation is to discourage skewed incentives in the ecosystem by bringing enforcement proceedings against violating finfluencers and disrupting their income sources The key guidelines include:
- SEBI-registrants, intermediaries, regulated entities, and representatives are prohibited from engaging in any financial or non-financial association with unregistered entities, including influencers, for the purpose of advertising or otherwise promoting their brand or goods.
- To preserve sensitive data, SEBI-regulated firms and intermediaries are not allowed to divulge any private customer information to unregistered entities.
- Finfluencers who are registered with SEBI, the stock market shall clearly publish any disclosures and disclaimers on their postings, along with their registration number, contact information, and investor grievance redressal hotline. These influencers will comply with the code of conduct and register when required.
- The registered firm must abide by all rules set out by stock exchanges or SEBI-approved governing bodies, as well as the advertisement guidelines that SEBI has established.
- Finfluencers and other third parties are not permitted to pay SEBI-intermediaries trail commissions in exchange for suggesting transactions.
- Stockbrokers may accept limited referrals from retail customers in exchange for fees, and there will still be room for real client-driven development.
- Intermediaries registered with SEBI must actively ensure they do not associate, directly or indirectly, with entities engaged in prohibited financial advisory activities. As per Regulation 16A of SEBI (Intermediaries) Regulations, 2008, Regulation 44B of SECC Regulations, 2018, and Regulation 82B of DP Regulations, 2018, registered entities cannot collaborate with unregistered individuals who provide financial advice or make performance related claims. SEBI may take enforcement action under Regulation 16B, 44C and 82C, leading to penalties, suspensions, cancellation of registration, or debarment. Additionally, violations may result in legal action under Section 420 of IPC (Section 318, 319 of Bhartiya Nyaya Samhita, 2023).
The 206th SEBI board meeting held on June 27th, 2024, broadly approved the recommendations outlined in the 2023 consultation paper.
As per SEBI’s circular dated January 29,2025, individuals engaged solely in investor education are exempt from regulatory restrictions only if they do not engage in investment recommendations or return- related claims. Additionally, such educators must not reference any security by name, ticker, code, or any coded reference, nor can they use market price data from the past three months in any format- including videos, screenshots or presentations. This regulatory update is set to impact the business model of numerous finfluencers who were using live market speculations to maintain their audience
This latest measure further tightens regulations by preventing unauthorized individuals from offering trading guidance, even under the pretext of educational content. Hence, this move by SEBI is expected to end any sort of illegal advisory businesses that many finfluencers operate without SEBI registration The circular also clarifies that while investor education is permitted, educators are prohibited from providing investment advice or making performance related claims unless they have SEBI’s approval.
SEBI also emphasized that it is the responsibility of regulated entities to ensure that neither they or nor any individuals or agents associated with them, directly or indirectly, engage in the aforementioned prohibited activities. SEBI initially restricted collaborations between registered and unregistered entities in its October 2024 circular, and the latest update on January 29 2025 further strengthens these regulations.
Challenges with SEBI’s Enforcement of the Finfluencer Regulations
- Enforcement and Monitoring in a Vast Digital Ecosystem:
The primary challenge for SEBI lies in aligning these standards with the ever-changing dynamics of the digital landscape. SEBI must find effective ways to monitor and regulate unregistered finfluencers on social media. Tracking violators is difficult due to the sheer volume of content posted daily and the ease with which new accounts can be created. In order to ensure compliance, SEBI intends to make large technological investments, the majority of which would go towards automated content analysis and the identification of illicit financial advertisements. [i]
- Distinguishing Between Financial Education and Investment Advice:
A key issue SEBI must address is distinguishing between general financial education and specialized investment advice. But as per the recent circular provides further clarity on what constitutes permissible financial education. It states that individuals engaged solely in education must not partake in the two prohibited activities: - Offering advice or recommendations on securities without SEBI registration or authorization.
- Making direct or indirect claims about returns or performance of any security without SEBI’s approval.
Additionally, educators cannot reference market price data from the preceding three months or mention any security- by name, implies future price movements or recommendation.
SEBI’s circular attempts to differentiate between financial education and investment advice by prohibiting educators from referencing securities or past market data. However, challenges remain in implementation, as casual financial discussions on social media are often misinterpreted as advisory content. The concern persist that SEBI’s restrictions could limit free financial discussions, affecting the accessibility of financial education for retail investors. Additionally, the broad scope of the regulation raises concerns about free speech, as finfluencers may argue that their discussions are purely academic rather than advisory. SEBI must ensure that these regulations do not stifle legitimate financial education while effectively preventing unregistered advisory services And the finfluencer will need to be able to have constructive financial conversations without crossing into unlicensed advice territory.[ii]
- Deficit of knowledge and its possible influence on financial literacy:
The Proposed Regulations are intended to prevent investors from receiving false advice, but they may unintentionally restrict access to free financial education, especially for novice and younger investors who rely heavily on social media influencers. There may be a financial literacy gap for those who cannot afford paid services if regulatory constraints force finfluencers to charge less or limit the amount of material they provide. This may have an indirect impact on financial literacy initiatives that are more accessible throughout India, especially in regions where conventional access to financial advice is limited.
- Innovation and Content Development Restrictions:
The Proposed Regulations may discourage creative approaches to financial literacy on social media. In an attempt to evade regulatory inspection, content providers may become too cautious and steer clear of certain themes. Because people may be afraid to exceed regulatory boundaries, financial information may become less dynamic and interesting as a result. SEBI will have to find a way to balance the needs of content providers and ensuring compliance without making it too difficult for them to continue producing useful financial education materials.[iii]
5. Unrestricted Market Manipulation and Telegram Channels:
Despite SEBI’s latest enforcement measures, unregulated financial advisory groups continue to thrive on encrypted platforms like Telegram and WhatsApp, where market manipulation remains a significant concern. While SEBI’s current circular does not explicitly regulate such platform, further regulatory interventions may be necessary to curb the influence of anonymous financial advisory groups. . Because these unregulated platforms lack monitoring and accountability, there is a considerable danger of market manipulation and unethical behavior. In order to close these gaps, SEBI’s rules will need to be more comprehensive, especially for platforms like Telegram that are becoming more important in the distribution of financial advice.[iv]
6. Investment advice is not defined: Although investment advice is defined under the SEB (Investment Advisors) Regulations, 2013, the definition excludes advice provided through widely accessible mediums such as newspapers, magazines and other broadcasting or electronic platforms, including social media. This exclusion creates a regulatory gap, allowing finfluencers to share market-related content without falling under purview of investment advisory regulations However, with the increasing influence of social media on investor decisions, SEBI is now tightening its stance to address this loophole and bring unregulated financial content under stricter oversight. This is not intended to restrict access to innovative content development or financial education in an effort to safeguard investors. For the purpose of giving participants at every step of the process clear instructions, the laws must keep up with the digital environment.
- Conclusion:
SEBI’s regulations on finfluencers mark an important step toward protecting investors in the digital age, addressing concerns about unqualified and unregulated financial advice. However, the successful implementation of these norms faces significant challenges, particularly in monitoring a vast and constantly evolving digital ecosystem. SEBI must balance the need for investor protection with the risk of stifling innovation and limiting access to free financial education.
The blended lines between general financial education and specific investment advice continues to pose challenges for regulatory enforcement. SEBI’s recent regulatory updates mark significant step towards clarifying the boundaries between financial education and investment advice while imposing stricter enforcement measures on violators. However, challenges remain, particularly with the rise of unregulated financial advisory groups on Telegram and other encrypted platforms. While SEBI’s framework now explicitly restricts unregistered finfluencers and introduces penalties for violators, further refinements may be needed to ensure investor protection without hampering legitimate financial education. Collaborating with content creators and using technology to build a regulatory environment can protect investors without hindering financial dialogues or innovation.
[1] Prachi Pandya, Shaili Dhulia, ‘FinFluencers — From the Lens of SEBI’(SCC ONLINE TIMES, 29 August 2023) < https://www.scconline.com/blog/post/2023/08/29/finfluencers-from-the-lens-of-sebi/> accessed 15 October 2024
[1] ‘RISE OF THE FINFLUENCERS’( Bussiness Today) <https://www.businesstoday.in/interactive/immersive/rise-of-the-finfluencers/>accessed 18 October 2024
[1] Financial Literacy and Inclusion Survey (National Centre for financial Education)<https://ncfe.org.in/nflis/> accessed 18 October 2024
[1] SEBI, Consultation paper on Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers) (2023)
[1] SEBI, Consultation paper on Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers) (2023) para 4.2
[1] SEBI, Consultation paper on Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers) (2023) para 4.3
[1] SEBI, Consultation paper on Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers) (2023) para 4.4
[1] SEBI, Consultation paper on Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers) (2023) para 4.5
[1] SEBI, Consultation paper on Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers) (2023) para 4.6
[1] SEBI, Consultation paper on Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers) (2023) para 4.7
[1] Business Standard https://www.business-standard.com/markets/news/sebi-finfluencer-circular-live-stock-data-market-education-rules-125013000571_1.html
[1] Saptaparno Ghosh, ‘Why Is SEBI Tightening Norms for “FinFluencers”? | Explained’ The Hindu (4 September 2023) <https://www.thehindu.com/business/markets/why-is-sebi-tightening-norms-for-finfluencers-explained/article67251818.ece> accessed 29 October 2024.
[1] ibid
[1] Kinjal Ahuja, ‘ SEBI’s New Finfluencer Regulations: Protecting Investors in Digital Age’ (Tax Guru, 01 Sep 2024)< https://taxguru.in/sebi/sebi-finfluencer-regulations-protecting-investors-digital-age.html>ccessed 20 October 2024
[1] ibid
[1]Gaargi Singh, ‘Power of Influence: Regulating the Financial Influencers in India’( SCC ONLINE TIMES, 30 August 2023) < https://www.scconline.com/blog/post/2023/08/30/power-of-influence-regulating-the-financial-influencers-in-india/> accessed 19 October 2024
