The Digital Financial Influencers Alias (Fin)fluencers

Anup Koushik Karavadi and Kanishk Tiwari

Introduction

In a highly structured and institutionalized Financial Market of Indian Economy, understanding of market dynamics and having a financial literacy is a much needed skill for adequately utilizing the benefits from market investment. However, despite a population of over a billion people¹ the basic financial literacy of the population, distinct from literacy in general, remains at staggering 24%, a large chunk of this financial literacy is strictly limited to urban centres of population in major metropolitan cities.²

In such case where the population does not have adequate financial literacy to understand the market dynamics, it is reasonable to infer that people resort to specialized advisors for making informed decision regarding their investments as to where, how, when to invest.

In the recent past, with the clear objective of the government to digitalize the economy, and subsequent legal mandates of dematerialization of shares in digital form as well as introduction of multiple online trading platforms, the chances of investors interests being compromised by fringe elements and fraudulent activities has increased drastically. It has not been the case with Indian Financial Markets that it has always been fool-proof, but rather the market has faced multiple fraudulent acts by individuals and organizations in the past inter-alia famous Satyam Scam and the Harshad Mehta Scam. The digitization has improved the traceability and prevention to financial frauds, however, it has also opened up new ways for fraudsters to con the unknowing investors.

The Securities and Exchange Board of India (hereinafter SEBI) was setup in the aftermath of shockwaves suffered by the Financial Market after the fraudulent acts of Harshad Mehta. The primary objective of this statutory body is to ‘protect the interest of the investors and promote/regulate the financial market.’³ Therefore, the SEBI is the nodal authority with expansive powers to take care of investor’s interests.

The highly institutionalized nature of Financial market requires multiple stakeholders to act in liaisoning capacity in order to facilitate a seamless trading experience for investors on the 5.5 trillion (cap) market⁴ which is crucial for functioning of a healthy economy. These entities who directly or indirectly facilitate trading are broadly termed as intermediaries.

The financial advisors who influence the decision of investors are also recognized as intermediaries within the statutory definition provided under Section 11 and 12 of SEBI Act.⁵ The subject matter of this article concerns the financial (investment) advisers in general, and the recently emerging ‘financial influencers’ who tend to utilize various internet and social media platforms to solicit the advisories in relation to investments. The new lucrative platforms that the digitization and access to internet provide a lucrative opportunity for these financial investment advisor intermediaries to solicit their advisories, making the financially illiterate investors become a target of fraudulent acts.

SEBI’s Role in Securities Market

The preamble of SEBI Act is of utmost importance to identify the role and function of SEBI which reads as follows:

“An Act to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto”⁶

With the corporate sector increasingly relying on the securities market for meeting their long-term requirement of funds, the securities market competed on equal terms with the development financial institutions which were the traditional purveyors of long-term capital. The emergence of the securities market into the main stream of the financial system of the country was thus one of the major economic processes of the decade of the 1980s—an inevitable outcome of the maturing process of the financial system. This brought about notable changes in the capital structure of the companies across industries, gave birth to new intermediaries and institutions in the securities market and created a new awareness and interest in investment opportunities in the securities market among investors.⁷

After the liberalization, privatization, and globalization (LPG) of Indian economy that took place in the 90s coupled with certain High-Profile controversial cases that shook the developing Indian Capital Market (Like Harshad Mehta),⁸ the government was compelled to introduce a robust mechanism to protect the interest of the Consumer, and thus, SEBI was introduced initially in 1988, and subsequently being conferred with a statutory authority by the SEBI Act in 1992 as a regulator of the Indian financial markets, to pursue its primary objective of ‘protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market’.

To summarize the role, it can be stated that SEBI plays a crucial role in shielding investors from exploitation by scammers and in rebuilding trust within the investment community. Through its investor education campaigns, SEBI empowers individuals with the knowledge to make informed, independent decisions in the stock market. SEBI also upholds investor protection through initiatives like the Investor Protection Fund and a streamlined Investor Complaints Redressal System.⁹

It is pertinent to deliberate briefly the regulatory powers and functions of the SEBI under the SEBI Act, which the regulatory utilize to attain the objective of Investor Protection.

Powers and functions of SEBI

Section 11(1) of the Securities and Exchange Board of India Act¹⁰ casts upon SEBI the duty to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market through appropriate measures. These measures in particular for intermediaries provide for—

• “regulating the business in stock exchanges and any other securities markets;
• registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities market in any manner;
• registering and regulating the working of the depositories, custodians of securities, foreign institutional investors (FIIs), credit rating agencies and such other intermediaries as the Board may, by notification, specify in this behalf;
• prohibiting fraudulent and unfair trade practices in securities market;
• promoting investors’ education and training of intermediaries in securities market;
• prohibiting insider trading in securities;
• calling for information from, undertaking inspection, conducting enquiries and audits of the stock exchanges, mutual funds, other persons associated with the securities market and intermediaries and self-regulatory organisations in the securities market”¹¹

It can be seen from the above list that SEBI possesses immense powers to regulate the various stakeholders in the Capital Market including Intermediaries. The regulatory framework developed by SEBI overtime to govern the conduct of intermediaries including defining what constitute intermediary has been discussed in the later part of the paper.

The Role of Investment Advisors in the Indian Market

The term ‘Financial Advisor’ is a holds a larger scope and is generally understood as “a skilled professional specialising in financial planning, investments, and wealth management, possessing characteristics such as strong analytical skills, excellent communication, in-depth financial knowledge, ethical conduct, a client-centric approach, adaptability to market changes, regulatory compliance, problem-solving aptitude, strategic planning ability, and a continuous learning mindset.”¹² They are essential in designing personalized financial strategies, providing a wide range of services from building customized investment portfolios to managing intricate tax considerations. Their expertise covers holistic financial planning, including estate and legacy arrangements, making them invaluable partners in helping clients reach their financial objectives and ensure long-term security.

It is important to note that ‘investment advisors’ is a relatively narrower concept within the larger head of financial advisors. These people categorically deal in the capital market and concerned transactions of securities. The regulatory framework has been developed around the professional activities carried on by these persons. The definition of investment advisor under Regulation 2(m) of Securities and Exchange Board of India (Investment Advisers) Regulations, 2013 is particularly important to understand the role of these entities.

“(m) investment adviser means any person, who for consideration, is engaged in the business of providing investment advice to clients or other persons or group of persons and includes any person who holds out himself as an investment adviser, by whatever name called”¹³

The role of investment advisors can be deciphered from the above definition to any professionals who are qualified to manage ones financial assets and provide guidance on various types of investments, such as equities and debt instruments. These advisers work with firms registered as “Investment Advisors” with regulatory bodies like SEBI in India (Further deliberation on regulatory framework in later part of the paper).¹⁴

Importance of advisors in a low-literacy environment

It is needless to say that an understanding of market dynamics and having a financial literacy is a much needed skill for adequately utilizing the benefits from market investment. However, despite a population of over a billion people¹⁵ the basic financial literacy of the population, distinct from literacy in general, remains at staggering 24-27%, a large chunk of this financial literacy is strictly limited to urban centres of population in major metropolitan cities.¹⁶ This urban-rural divide leaves a large portion of the population vulnerable to misinformation and unable to leverage their resources effectively for wealth generation.

In such scenario, the financial advisors in general, and investment advisor in particular play a vital role in acting as a guiding light for the naïve investors unaware of proper utilization of their capital assets. The role of investment advisors extends beyond just individual financial well-being. As investors become more knowledgeable and confident, they contribute more actively to the financial ecosystem, fostering greater capital flow within the economy. This increased circulation of capital strengthens the overall market, boosting national financial health and stability. By helping individuals utilize their resources productively, advisors contribute to a healthier, more robust economy that supports sustainable growth. In this way, financial advisors not only play a crucial role in personal wealth creation but also serve as key players in advancing the nation’s economic progress.

Regulatory Framework governing Intermediaries

The SEBI has come up with one principal i.e., Securities and Exchange Board of India (Intermediaries) Regulations, 2008, and the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013.

A general regulatory framework affixing liabilities and responsibilities of Intermediary in accordance with SEBI Act has been provided under SEBI (Intermediary) Regulation 2008, whereas, the SEBI (Investment Advisers) Regulation 2013 specifically concerns the liabilities and responsibilities of investment advisors as intermediaries.

Who is an Intermediary (General Framework)

Regulation 2(g) of SEBI (Intermediary Regulations) define an intermediary as

“(g) “intermediary” a person mentioned in clauses (b) and (ba) of sub-section (2) of section 11 and sub- section (1) and (1A) of section 12 of the Act and includes an asset management company in relation to the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, a clearing member of a clearing corporation or clearing house, foreign portfolio investors] and a trading member of a derivative segment [or currency derivatives segment] of a stock exchange but does not include [***] foreign venture capital investor, mutual fund, collective investment scheme and venture capital fund”¹⁷

It is only on the grant of certificate of registration under Regulation 3¹⁸ that an intermediary can officially engage in trade practices relating to financial services in capital market.

The application procedure outlined Chp. II of Regulations (Reg. 3-11) must be strictly complied including the considerations outlined in Regulation 7 which are as follows:

“1) For considering the eligibility of the applicant and grant of certificate to such applicant, the Board shall take into account all matters which it deems relevant to the activities in the securities market, including but not limited to the following:
(a) whether the applicant or any of its associates have in the past been refused certificate by the Board and if so, the ground for such refusal;
(b) whether the applicant, its directors or partners, or trustees, as the case may be or its principal officer is involved in any pending litigation connected with the securities market which has an adverse bearing on the business of the applicant or on development or functioning of the securities markets;
(c) whether the applicant satisfies the eligibility criteria and other requirements as specified in these regulations and the relevant regulations;
(d) whether the grant of a certificate to the applicant is in the interest of the investors and the development of the securities market.”¹⁹

However, it is important to outline the general obligations of Intermediaries (provided in Chapter III) once the certificate of registration is granted to them after due process.

General Obligations of Intermediaries

1. Time to time submission of Certificate of Compliance of Regulations including any other relevant obligations.²⁰
2. Redressal of investor grievances not later than forty-five days of receipt of grievance.²¹
3. Appointment of compliance officer for monitoring the compliance by it of the requirements of the Act, rules, regulations, notifications, guidelines, circulars and orders made or issued by the Board or the Central Government, or the rules, regulations and bye-laws of the concerned stock exchanges, or the self-regulatory organization, where applicable.²²
4. Investment advice restriction by an intermediary about any security in the publicly accessible media, whether real-time or non-real-time, unless a disclosure of its interest, direct or indirect, including its long or short position in the said security has been made, while rendering such advice.²³
5. Complying with General Code of Conduct under Schedule III of the Regulations.²⁴

The discussed obligations are equally applicable to all type of intermediaries falling within the bracket of the definition of this term. However, specialized regulatory framework to specifically govern the various facets involved in investment advisory has been formulated by the SEBI for Investment Advisors, which shall be deliberated upon now.

Investment Advisors as Intermediaries (Framework)

We have already discussed the meaning of investment advisor under Regulation 2(m) of SEBI (Investment Advisers) Regulations, 2013 in the foregoing part of the paper.
There are general overlaps between the specific regulations that govern the Investment Advisors and the general intermediary regulations that have been discussed in the foregoing part. Therefore, a brief discussion certain segments of the regulatory framework including the liability aspect of Investment Advisers under the specific 2013 guidelines is necessary.

Meaning of Investment Advise (S. 2(l))

Regulation 2(l) defines the expression ‘investment advice’ as “advice relating to investing in, purchasing, selling or otherwise dealing in securities or investment products, and advice on investment portfolio containing securities or investment products, whether written, oral or through any other means of communication for the benefit of the client and shall include financial planning. The investment advice given through newspaper, magazines, any electronic or broadcasting or telecommunications medium, which is widely available to the public shall not be considered as investment advice for the purpose of these regulations.”²⁵

Registration Requirements

Anyone intending to act as an investment adviser in India must obtain registration from the Securities and Exchange Board of India (SEBI). The application for a certificate of registration must be submitted in Form A, along with a non-refundable application fee, as specified below:

• For Individuals: Rs. 2,000
• For Corporates and LLPs: Rs. 10,000

After SEBI reviews and communicates approval, the applicant must pay a registration fee within 15 days. The registration fee amounts are:

• For Individuals: Rs. 3,000
• For Corporates and LLPs: Rs. 15,000

The registration is valid for five years, after which it must be renewed by paying a renewal fee as follows:

• For Individuals: Rs. 1,000
• For Corporates and LLPs: Rs. 5,000

Fees can be paid via direct bank transfer (NEFT/RTGS/IMPS) or through SEBI’s online payment gateway, with additional modes available as specified by SEBI. Upon approval, the certificate of registration will be issued in Form B.²⁶

Qualification as Investment Advisor Intermediary

To qualify as an individual investment adviser or as the Principal Officer of a non-individual investment advisory firm, certain minimum educational and professional standards are required:

1. Educational Qualifications: The candidate must hold a professional qualification, post-graduate degree, or post-graduate diploma (minimum two years in duration) in fields such as finance, accountancy, business management, commerce, economics, capital markets, banking, insurance, or actuarial science. This qualification must be from a university or institution recognized by the Central or State Government, or an accredited foreign university, institution, or association. Alternatively, a professional qualification may be met by completing:
   • A Post Graduate Program in Securities Market (Investment Advisory) from the National Institute of Securities Markets (NISM) with a minimum duration of one year, or
   • A CFA Charter from the CFA Institute.
2. Professional Experience: A minimum of five years’ experience in financial advisory activities, such as advising on financial products or securities, fund or asset management, or portfolio management, is also required.

These standards ensure that investment advisers have both the academic foundation and the practical expertise necessary to provide informed and reliable financial advice.²⁷

Exemption from Registration

The following individuals and entities are exempt from seeking registration as investment advisers, provided they meet specific conditions:

1. General Commentators: Individuals offering general comments in good faith on financial or securities market trends or the economic situation, without recommending specific securities or investment products.
2. Insurance Agents/Brokers: Insurance agents or brokers providing investment advice solely on insurance products, registered with the Insurance Regulatory and Development Authority (IRDA).
3. Pension Advisors: Advisors giving investment advice exclusively on pension products, registered with the Pension Fund Regulatory and Development Authority (PFRDA).
4. Mutual Fund Distributors: Distributors of mutual funds who are either members of a self-regulatory organization recognized by SEBI or registered with an association of asset management companies, providing investment advice incidental to their primary distribution role.
5. Legal Professionals: Advocates, solicitors, or law firms offering investment advice incidental to their legal practice.
6. Chartered Accountants and Other Professionals: Members of the Institute of Chartered Accountants of India, Institute of Company Secretaries of India, Institute of Cost Accountants of India, Actuarial Society of India, or any other professional body specified by SEBI, providing investment advice incidental to their professional services.
7. Registered Financial Market Participants: Stock brokers, sub-brokers, portfolio managers, or merchant bankers registered under SEBI regulations, giving investment advice as an incidental part of their primary business activities.
8. Fund Managers: Managers of mutual funds, alternative investment funds, or other SEBI-registered intermediaries.
9. Advisors for Non-Indian Clients: Individuals or entities offering investment advice exclusively to clients based outside of India.
10. Registered Investment Adviser’s Staff: Principal officers, advisory associates, or partners within an SEBI-registered investment advisory firm.
11. Others as Specified by SEBI: Any additional persons or entities that SEBI may exempt from registration.²⁸

General Obligations and Responsibilities of Investment Advisors

• Act in a fiduciary role, disclosing conflicts of interest as they arise.
• Accept compensation only from the client, not from third parties related to the advised products.
• Maintain separation between advisory services and other business activities.
• Disclose any conflicts of interest to clients.
• Keep client information confidential unless legally required to disclose it.
• Avoid personal transactions that contradict client advice for 15 days.
• Follow SEBI’s KYC and Code of Conduct.
• Not trade directly with clients.
• Report required information to SEBI.
• Ensure advised investments match the client’s risk profile.

Code of Conduct Adherence

The code of conduct expected to be followed by Investment Advisors has been summarized as follows:

An investment adviser is expected to act with honesty, fairness, and in the best interests of both its clients and the integrity of the market. It must provide advice with due skill, care, and diligence, ensuring recommendations are made after a comprehensive analysis of all available options. Advisers should maintain adequate resources and procedures for efficient business operations and gather pertinent information from clients regarding their financial status, investment experience, and objectives, while safeguarding this information’s confidentiality. Advisers are required to disclose all relevant material information transparently in dealings with clients. Fees for advisory services may be charged, but they must be fair, reasonable, and within any regulatory limits set by the Board.

Efforts should be made to minimize conflicts of interest, and where unavoidable, advisers must disclose these conflicts to ensure clients are treated fairly. Advisers, including their partners, principal officers, and other personnel, must adhere to all applicable regulatory standards to protect client interests and maintain market integrity. In the case of registered corporate entities, senior management holds primary responsibility for upholding high standards of conduct and procedural compliance within the organization.²⁹

Liability

The liability may include actions like cancellation of certificate of registration and penalty for the investment adviser who-

• Contravenes any provisions of the Act or regulations, or circulars issued under it.
• Fails to furnish information related to its activities as an investment adviser as required by the Board.
• Submits false or misleading information to the Board on any material aspect.
• Does not submit periodic returns or reports as mandated by the Board.
• Fails to cooperate in any inquiry, inspection, or investigation conducted by the Board.
• Neglects to resolve investor complaints or provide satisfactory responses to the Board regarding such complaints.

Now that the larger framework concerning Investment Intermediaries is clear, it is pertinent to proceed with discussion on the subject matter of the research paper that is the newly found concept of Financial Influencers utilizing technologically advanced means like Social Media to spread financial information regarding the markets.

Emergence of Financial Influencers (Finfluencers)

The new age Digital revolution that was caused by the market bending entry of affordable high quality internet services by Jio Telecom back in 2016, does not need any introduction. Moreover, the COVID-19 pandemic only bolstered the usage of internet in India for number of years. The utilization of internet especially the Social Media Platforms like Instagram, Twitter, and other unregulated websites increased many folds and in ways which was earlier considered unimaginable.

The rise of Financial Influencers (infamously known as finfluencers) also can be attributed to the Digital Age. SEBI has defined finfluencers as “individuals who provide advice on various financial topics and can influence the financial decisions of their followers.”³⁰ Unlike the professional investment advisors that are duly registered with SEBI, these finfluencers are not registered, and were initially not recognized as investment advisor professionals by SEBI at all. However, realizing the leverage they hold in influencing the financial decision of their naïve followers, and the harm that may be inflicted if such finfluencers, who at time possess ulterior motive wherein their advice is in lieu of a monetary consideration and not based on actual market dynamics.

Regulatory Framework and Challenges in Monitoring Finfluencers

The Finfluencers usually do not charge their viewers and advice is publicly available for all, they fall outside the scope of “investment advisor”, exempting them from registration requirement under the Regulations. Hence, Finfluencers in India have mostly operated without oversight from financial regulators, apart from guidelines from the Advertising Standards Council of India (ASCI), which updated its rules on influencer advertising in 2023.³¹

Prohibition of Fraudulent Trade & Unfair Practices Regulations 2003

It is noteworthy to mention that despite a lack of clear regulations to control the menace of consumer deceiving practices by these Finfluencers, the PFUTP Regulations stands as a solitary guard for protection of investors, giving sweeping powers to SEBI under Section 12A(c) of the SEBI Act, read with the PFUTP Regulations to prohibits market participants from, inter alia, engaging in any act or practice, while dealing in listed securities, which would operate as fraud or deceit upon any other person and which is prohibited under the SEBI Act or any rules or regulations framed thereunder.

Instances of Finfluencers Fradulent Conduct on Investors Interest

The Arshad Warsi Controversy: The unethical finfleuncing is not limited to unknown entities, but even the famous personalities like Actor Arshad Warsi have recently been prohibited by SEBI from indulging in finfluencing activities in lieu of monetary consideration from promoters of securities.³² In the matter of Sadhna Broadcast Limited and Sharpline Broadcast Limited, “the promoters of these companies, in collusion with YouTube creators, disseminated false and misleading content, leading to the creation of false interest in the scrip. The videos projected exponential growth and urged viewers to immediately acquire the shares of the company in question. Once the investors invested in the stock, the entities behind the videos offloaded their holding at an inflated price. SEBI, in its interim order, opined that such fraudulent conduct artificially increased the price of the scrip, which allowed large shareholders, and the promoters and some key personnel in booking significant profits.”³³

The final order of the SEBI in the above case recently came, where Actor Arshad Warsi, his wife along with more than 50 accomplices were held liable for ‘pump & dump’ scheme orchestrating a false narrative on social media. Thus, under the SEBI Act, and relevant PFUTP Regulations they were barred from the market for a period of 5 years.³⁴

In a similar incident, “a Telegram channel was regularly used to disseminate misleading information and manipulate the market to make unlawful profits. Their modus operandi was to first buy shares of a company and then induce subscribers of the Telegram channel to invest in the said company. Once the stock price inflated, the finfluencers offloaded their shares for a profit. Through its interim order, SEBI banned the companies involved from the securities market and imposed a fine of INR 5.68 crore.”³⁵

The current regulatory framework focuses solely on tackling fraudulent and unfair trading practices, lacking the mechanisms needed to address the complex issues posed by unregistered or unregulated finfluencers operating in a regulatory grey area.

SEBI’s Intervention in Regulating Finfluencers

As stated, it was primarily the ASCI Guidelines that were in existence to safeguard consumers against misleading advertisements by requiring influencers to disclose any material connection between the advertiser and influencer.³⁶ However, these guidelines were only voluntary. Further, PFUTP Regulations also came to the rescue where sufficient evidences existed to act against deceivers. Hence, the Market watchdog SEBI has amended norms in a bid to regulate unregistered financial influencers or finfluencers amid growing concerns about potential risk associated with such unregistered persons.³⁷

SEBI’s move to regulate finfluencers followed discussions among international regulators within the International Organization of Securities Commissions, resulting in a report on Retail Distribution and Digitalization. This report recommended that members introduce regulatory measures to address the growing risks associated with the digitalization of retail marketing and distribution. Digitalization challenges include situations where influencers promote financial products or firms without disclosing potential risks or their connection to these firms. To protect retail investors, the report advised that firms engaging influencers should bear the responsibility for ensuring accurate information and timely disclosures. Following this report, SEBI issued a consultation paper seeking public input on proposed norms, which reflect the recommendations of the consultation paper and also emphasize the importance of investor education.

The following major steps by way of consultation papers, and separate notifications, were taken by regulator to restrict associations between its regulated entities and unregistered individuals (that include finfluencers).

1. The 2023 Consultation Paper provides that:
   • unregistered entities (finfluencers) are not allowed to work with registered intermediaries or regulated entities, or their agents or representatives, to promote or advertise their services or products;
   • finfluencers registered with SEBI or stock exchanges or Association of Mutual Funds in India (“AMFI”) in any capacity:
     1. “must include their registration number, contact information, contact number, investor grievance redressal helpline, and a disclaimer on any posts;
     2. must make appropriate disclosure and disclaimer on any posts;
     3. must adhere to the code of conduct outlined in terms of their relevant registration as well as any advertisement guidelines issued by SEBI, stock exchanges, or other SEBI-recognised regulatory authorities;
     4. must not pay any trailing commissions based on the number of referrals as referral fees. However, stockbrokers shall be permitted to accept and pay referral fees for restricted referrals from retail clients;
     5. entities registered/ regulated by SEBI or stock exchanges or AMFI shall not share confidential client information with any unregistered entities.”³⁸
2. Press Release Notification of 206th meeting of SEBI:
   According to the notification, individuals under SEBI regulation and their agents will not be involved in any financial transactions, client referrals, or IT system interactions with anyone who directly or indirectly offers advice, recommendations, or makes obvious claims for returns.³⁹

Suggestive Regulatory Measures

Although SEBI is taking proactive steps to curb the menace of Finfluencers, however, in the ever-evolving landscape of technology and its intermingling with the Securities Market, the new unprecedented challenges affecting the investors interests are bound to come. Hence, so far as the regulation of finfluencers is concerned, I propose the following suggestions in the regulatory framework, based on the knowledge developed from the overall analysis of the topic:

1. Mandatory Disclosure Standards: Introduce strict guidelines requiring finfluencers to disclose any monetary or non-monetary incentives received from third parties, including the nature and extent of such compensation. This transparency will help followers assess the objectivity of financial advice.
2. Enhanced Oversight of Digital Platforms: Collaborate with social media platforms to ensure they comply with financial advertising standards. Platforms could be required to flag content from unregistered finfluencers, allowing SEBI to identify and track unauthorized advisory activities more efficiently.
3. Education and Awareness Campaigns: SEBI could launch a public education campaign to inform investors about the risks of following unregistered advisors and promote critical evaluation of online financial content. This will empower investors to make more informed decisions.
4. Establish a Finfluencer Code of Conduct: SEBI could introduce a code of conduct specifically for finfluencers, covering transparency, conflict of interest disclosures, and ethical guidelines, with clear consequences for violations to ensure accountability.

Conclusion

SEBI’s role in India’s securities market remains pivotal in fostering a transparent and secure investment environment. With the rapid expansion of digital finance, SEBI’s regulatory framework has effectively governed traditional intermediaries, including investment advisors, by establishing clear registration and conduct standards. This has enhanced accountability and protected investors against fraudulent practices, even as it facilitated the growth of advisory services in a complex financial ecosystem. Investment advisors, regulated as intermediaries under SEBI’s purview, are crucial in promoting financial literacy and guiding investments, especially in a market characterized by low general financial awareness. Their adherence to SEBI’s standards helps secure investor interests and boosts overall market stability.

The rise of digital financial influencers, or “finfluencers,” introduces a novel challenge, however, operating largely outside of SEBI’s regulatory framework, finfluencers can significantly sway investment decisions, often without the knowledge, accountability, or disclosure requirements imposed on licensed advisors. This regulatory gap has resulted in instances where finfluencers have used misinformation to manipulate markets, creating substantial risks for investors. While SEBI has taken preliminary steps to curb these activities—such as prohibiting unregistered entities from associating with SEBI-regulated firms and requiring disclosures for influencers registered under other financial entities—the effectiveness of these measures in addressing the full scope of digital influence remains limited.
To bridge this gap, SEBI must enhance regulatory measures by enforcing more rigorous disclosure standards, establishing certification protocols for finfluencers, and promoting collaboration with digital platforms. These steps, alongside increased investor education initiatives, can strengthen the regulatory fabric around finfluencers, mitigating the risks they pose while preserving the benefits of digital financial advice. By refining its approach, SEBI can safeguard investor trust in a progressively digitalized market while ensuring a balanced and inclusive regulatory framework that supports ethical financial advisory practices.

Bibliography

I Printed Sources

Books

• K Sekhar, GUIDE TO SEBI, CAPITAL ISSUES, DEBENTURES & LISTINGS, (Online Copy – Lexis), (5th ed. 2019).

Articles

• Greeshma Jayakumar Patil, Role Of SEBI In Investor Protection, 4 IJLLR 1, 2 (2022).
• Malini Mukherjee, SEBI’s Finfluencer Legal Framework: Gaps in Enforcement and Investor Education, INDIACORPLAW (2024), https://indiacorplaw.in/2024/08/sebis-finfluencer-legal-framework-gaps-in-enforcement-and-investor-education.html.

Reports

• Securities and Exchange Board of India, Consultation Paper on Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers) [August 25, 2023]. (“Consultation Paper”).
• Press Release, The 206th meeting of the SEBI Board, PR No. 12 /2024 (SEBI 2024), https://www.sebi.gov.in/sebi_data/meetingfiles/jul-2024/1719916854117_1.pdf.

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20. See id., at Reg. 12.
21. See id., at Reg. 13.
22. See id., at Ref. 14.
23. See id., at Reg. 15.
24. See id., at Reg. 16.
25. See id., at Reg. 2(l).
26. See id., at Schedule II.
27. Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, Regulation 4.
28. See id., at Reg. 4.
29. See id., at Schedule III.
30. Malini Mukherjee, SEBI’s Finfluencer Legal Framework: Gaps in Enforcement and Investor Education, INDIACORPLAW (2024), https://indiacorplaw.in/2024/08/sebis-finfluencer-legal-framework-gaps-in-enforcement-and-investor-education.html.
31. See id.
32. Explained Desk, Why SEBI barred actor Arshad Warsi and others from the securities market, THE INDIAN EXPRESS (2023), https://indianexpress.com/article/explained/explained-economics/sebi-banned-actor-arshad-warsi-8476020/.
33. Interim Order in the Matter of Stock Recommendations using YouTube in the scrip of Sadhna Broadcast Limited, WTM/AN/ISD/ISD-SEC-1/24333/2022-23 [March 2, 2023].
34. Final Order in the Matter of Stock Recommendations using YouTube in the script of Sadhna Broadcast Limited, WTM/AB/ISD/ISD-SEC-5/31442/2025-26.
35. Final Order in the Matter of Stock Recommendations using Social Media Channel (Telegram), WTM/AN/ISD/ISD-SEC-3/25879/2023-24 [April 26, 2023].
36. Malini Mukherjee, supra note 30.
37. PTI, SEBI amends rules to regulate finfluencers, THE HINDU (2024), https://www.thehindu.com/news/national/sebi-amends-rules-to-regulate-finfluencers/article68585276.ece.
38. Securities and Exchange Board of India, Consultation Paper on Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers) [August 25, 2023]. (“Consultation Paper”).
39. Press Release, The 206th meeting of the SEBI Board, PR No. 12 /2024 (SEBI 2024), https://www.sebi.gov.in/sebi_data/meetingfiles/jul-2024/1719916854117_1.pdf.