Will India regulate ‘finfluencers’ as a rising number fail to adhere to the rules?

Calls are mounting for a crackdown on financial influencers in India after the country's market regulator penalised a popular social media personality and trader. There has been a boom in India in the popularity of financial influencers – or “finfluencers” – who offer advice on matters including investments and trading via social media platforms such as YouTube and Facebook. But questions about the legitimacy of this practice have come into sharp focus as the Securities and Exchange Board of India last month fined one finfluencer, PR Sundar, to the tune of 60 million rupees and imposed a one-year trading ban on him for alleged breaches of investment advisory regulations. This followed complaints that Mr Sundar – a former maths teacher who styled himself as a trading guru – and his company Mansun Consulting were collecting advisory fees without registering with the market regulator. There is no specific set of regulations for financial influencers in India and this was the first case of its kind. “India should create regulations,” says finfluencer Himani Chaudhary, a qualified research analyst with 589,000 followers on Instagram, who gained traction by making a series of videos on stock market basics for beginners. The rise of finfluencers in India follows an increase in online stock market trading among retail investors, which started to surge in popularity during the Covid-19 pandemic. People stuck at home were looking for alternative ways to make money as stocks plunged due to initial uncertainty over the pandemic, creating buying opportunities, before rallying, experts say. The total number of demat accounts – which are required for people to make stock market investments in India – reached 108 million in December 2022, up 34 per cent from a year earlier, according to analysis by Motilal Oswal Financial Services. “The Covid lockdown coupled with huge marketing spends by brokers to acquire new customers drove an unprecedented number of first-timers to financial markets. And the first question these newbies had was: ‘how to...?’” says Saurabh Pandey, chief marketing officer at Kuvera.in , an online investment platform. “YouTube and other social platforms thus became the default destination. This exploding demand for content led to the rise of the new 'finfluencers' in India.” This comes amid growing internet usage in India and the rise of influencers in general in the country due to social media trends. “Financial influencers have gained popularity in India due to increasing financial awareness, digital media platforms, trust and relatability, simplifying financial concepts, personal branding and building communities,” says VLA Ambala, a research analyst and co-founder of Stock Market Today, a Sebi-registered financial advisory platform. Some of India's most popular finfluencers have millions of followers – delivering advice in Hindi, English and regional languages. “They educate and simplify complex financial topics, making them accessible to a wider audience,” says Ms Ambala. “Their relatability and personal experiences establish trust, while social media platforms allow them to reach and engage with millions.” But “caution and independent research are necessary” when considering the advice offered by finfluencers, she warns. Ms Ambala says many people do not have the necessary qualifications to perform such a role, and that “Sebi should take immediate action to shut down all unauthorised tip and services providers – whether it's free or paid”. To charge for investment advice, they should have a licence from Sebi, she says. Financial influencers also generate revenue through advertisements, partnerships with brands and by promoting trading platforms. However, there are limited mechanisms to keep how these influencers operate in check, which has resulted in some unscrupulous practices, industry experts say. “There have been numerous cases of influencers selectively sharing screenshots of successful trades and deleting unfavourable transactions, luring the average investor into trades with the promise of high returns,” says Mr Pandey. “A massive social media following can and has been used to perpetrate pump-and-dump schemes” – in which a stock's price is manipulated by spreading false information. Akshar Shah, founder and chief executive at investment technology platform Fixed, says that the financial relationships between finfluencers and brokers “should be subject to stringent regulations”, given this is how many finfluencers make money. “Transparency and disclosure are crucial in maintaining trust, ensuring that conflicts of interest do not compromise the dissemination of unbiased information,” he says. A few weeks ago, India's Finance Minister Nirmala Sitharaman warned of possible risks from some financial influencers and “Ponzi scheme” apps. She said, however, that there were no plans to regulate financial influencers. “If there are three or four people giving us very objective, good advice, there are seven others out of 10 who are probably driven by some other considerations,” Ms Sitharaman said at the time. Meanwhile, some financial influencers are now more cautious, after Sebi’s action against Mr Sundar. Niyati Mavinkurve, a digital content creator and co-founder of YouTube channel Let’s Make You Rich , says recent developments send a strong message that “there's a regulator watching”. “I mainly simplify and explain concepts when it comes to finance,” she says. “There has been no impact in the way I operate. “Even before Sebi started cracking down on influencers, I'd been preparing to get an investment adviser licence. I've never promoted anything on the finance channel – it has been self-funded.” Financial influencer Ms Chaudhary says when she started creating financial content, many people contacted her to manage their portfolios, “which I cannot do legally nor do I wish to”. Following Mr Sundar’s case, “the only change I plan to make would be being more transparent with my community”, she says. Financial influencers are waiting to see what will happen next when it comes to regulation. Shavir Bansal, a content creator, finance expert and founder of BeKifaayati, which offers personal finance educational content and has more than one million subscribers on YouTube, says that on the one hand, “new regulations, if implemented, would be beneficial in the long term”. “They would create a barrier to entry, allowing those who operate within the legal framework to thrive while forcing fake ones out of the industry,” he says, warning there could also be negative consequences if such regulations are not implemented carefully. “I recognise that regulating financial influencers is a complex and challenging task. “Sebi might find it hard to establish clear guidelines distinguishing financial advice from financial education. India's financial literacy levels are relatively low. “It's essential for the regulator to devise a suitable mechanism that protects genuine professionals from any adverse impact.” A lack of specific regulation for finfluencers means that consumers should do their own research, says Anil Joshi, managing partner at Unicorn India Ventures, an early stage venture capital fund. “Sharing content or posting views on any particular investable stock is non-offensive as long as it is a well-researched stock and with good analytical views,” he says. “Considering the growing influence of the financial influencers, the regulators may come up with the guidelines, and once that happens, then it will be illegal to give advice without registration.” He points out that guidelines – if introduced – are unlikely to be foolproof. “It would be difficult to manage individuals who share their views,” says Mr Joshi. As finfluencers have become too big to ignore, it will be a case of striking the right balance, experts say. “Finfluencers, with their ability to disseminate financial information and insights, have undoubtedly played a significant role in shaping the investment landscape,” says Mr Shah. “As we embrace the power of finfluencers, we must find the delicate balance between their influence and the protection of individual investors.”

Will India regulate ‘finfluencers’ as a rising number fail to adhere to the rules?

Some of India’s most popular financial influencers have millions of followers, but the practice has no specific set of regulations