SEBI’s crackdown on finfluencers to impact advertising in BFSI; Expected to affect other categories too

SEBI and ASCI have tightened their guidelines, mandating registration for influencers in the BFSI sector to ensure accountability and transparency. Experts say it could result in significant changes to the marketing strategies, requiring strategic marketing and ad spending, with brands being extra cautious.

The rise of ‘finfluencers’ (financial influencers) for investment advice, has raised serious concerns about financial risks and consumer protection. The message from authorities is clear: Do not trust financial influencers blindly as the majority of them are still unregistered, and their advice can inadvertently impact stock prices and affect your decision-making criteria, raising the risks of potential scams and losses. This pool of unregistered finfluencers flooding social media with unsolicited and unregulated financial advice has in fact prompted India’s market regulator, the Securities and Exchange Board of India (SEBI), to crack the whip.

SEBI has barred regulated entities from associating with ‘unregistered finfluencers’ and the regulator also stated that it shall be the responsibility of the registered entity to ensure that the person with whom it is associated does not indulge in prohibited activities. This move aims to protect investors from potentially misleading or biased advice that unregistered finfluencers might provide. Finfluencers often operate without adhering to regulatory standards and may promote financial products for undisclosed compensation, leading to conflicts of interest.

Last year, YouTuber and finfluencer Abhishek Kar, was alleged to have induced people into trading in stocks without any approvals from SEBI. Another finfluencer, Ravisutanjani Kumar with 1.25 Lakh followers, was also exposed after his claims and accolades were exposed by an anonymous X handle.

According to SEBI data, India has over 1,300+ registered investment advisors catering to more than 80 million investors. By restricting these associations, SEBI hopes to reduce perverse incentives and ensure that financial advice provided to the public is credible and transparent.

The market regulator in the past banned 45 such entities, including Bollywood actor Arshad Warsi and his wife Maria Goretti, from the securities market for cases related to the manipulation of share prices of two companies by uploading YouTube videos. SEBI said that promoters of Sadhna Broadcast and Warsi, along with Youtuber Manish Mishra, recommended investors to buy the company shares, inflating its price, and later dumped it, thus undertaking stock manipulation.

Gautam Madhavan, CEO and Founder, Mad Influence & Creators United, notes that the fintech influencer space has grown significantly, driven by the increasing reliance on digital platforms for financial advice and education. The sector is expanding as more individuals turn to social media for investment tips and financial guidance. BFSI (Banking, Financial Services, and Insurance) clients are investing substantial amounts in influencer marketing to reach younger, tech-savvy audiences.

However, after the SEBI regulation, there might be a decrease in ad spends on unregistered finfluencers, he noted.

The exact impact on spending will depend on how many influencers opt to register and comply with SEBI’s guidelines.

The exact number of registered vs. unregistered finfluencers is not clearly defined, but the majority currently operate without registration. SEBI and Advertising Standards Council of India (ASCI) have tightened their guidelines, mandating registration for influencers in the BFSI sector to ensure accountability and transparency. This move aims to curb unethical practices and enhance the quality of financial advice provided to the public.

However, despite the new regulations, it is very unlikely that the fintech advertising segment will abate any time soon, adds Shradha Agarwal, Co-Founder and CEO- Grapes.

“What remains to be seen is how the advertising sector navigates the new terrain. Ad companies need to be agile enough to comply with the regulations outlined by SEBI while adopting avenues that can help in seamless integration of various processes,” she says.

This could result in significant changes to the marketing strategies, requiring strategic marketing and ad spending. But from a larger perspective, the advertising industry can immensely benefit from collaboration with registered fininfluencers, as it will allow more responsible and transparent communication.

Also, SEBIs guidelines are being understood slowly by most, and it’ll take time to build a process around it, highlights Sahil Chopra, Founder CEO, iCubeswire.

“There are millions of influencers, and it’s impossible to regulate them at the scale and volume the social media operates. ASCI can pass the guidelines, but as far as I see, they have no authority or legal right to anything beyond issuing few guidelines. Content moderation is a need of the hour and the platforms themselves need to come out with methods of content score and sentiments to analyse the same which will eventually help with control,” he suggests.

The risk and the norms

In another instance, SEBI barred ‘trading guru’ with over a million followers—P R Sundar from the markets for a year, and charged him ₹6.55 crores, for misleading people with his unsolicited financial advice.

Given such rampant cases, on June 27, the regulator finally approved norms to regulate unregistered financial influencers, addressing the risks associated with these influencers. The market regulator approved the proposal to ban registered entities from associating with unregistered investment advisors such as finfluencers. It has allowed registered entities to associate with unregistered entities if they are only sharing educational content.

SEBI also stated that registered entities are to ensure that the person with whom they are associated does not indulge in prohibited activities.

The market regulator said in a press statement: “Persons regulated by the Board and the agents of such persons shall not have any association, like any transaction involving money or money’s worth, referral of a client, interaction of information technology systems or any other association of similar nature or character, directly or indirectly, with any other person who, directly or indirectly, provides advice or recommendation or makes any implicit or explicit claim of return or performance, in respect of or related to security or securities unless permitted by the Board to provide such advice/recommendation.”

Last year, it had released a consultation paper aimed at transforming financial influencers.

Instances have been reported where unregistered finfluencers have led investors astray, resulting in significant financial losses.

Madhavan highlights that unregistered influencers pose several risks, including spreading misinformation, providing biased advice due to undisclosed compensation, and exploiting their followers for personal gain. By relying on unregistered entities, investors may receive advice that is not in their best interest, emphasising the need for stringent regulations.

Impact on other categories

According to the ASCI’s Influencer Trust Report, nearly 90% of respondents make at least one purchase based on an endorsement done by an influencer and around 80% of respondents trust social media influencers, citing ‘transparency and honesty’ as key reasons.

Therefore, under the garb of content and the free social world, ‘get slim fast, get rich fast’ dishonest and fraudulent schemes always find takers.

Good news is SEBI’s strict approach towards finfluencers to display their qualifications and registration details could potentially be extended to other sectors, such as skincare or health, where unregulated advice can also have significant repercussions, say experts.

Chopra concludes by saying SEBI guidelines are there now, but again the scale at which the social media world, it’ll be hard to moderate it at an individual level. That’s why platforms need to come up with these elements for it to be viable and fair for the entire ecosystem.

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