Economic Fraud
Influencers and Finfluencers Under SEBI’s Radar for Promoting Fraudulent Investment Schemes
SEBI has tightened regulations to bring unregistered financial influencers, or “finfluencers,” under its watch, aiming to curb misleading advice and ensure investor protection. Influencers promoting financial schemes without SEBI registration may face penalties or even criminal charges, as clarified by legal experts.
In a move to safeguard investors from misleading financial advice, the Securities and Exchange Board of India (SEBI) has amended its regulations to address the activities of unregistered financial influencers, commonly known as “finfluencers.” The new norms prevent SEBI-regulated entities, such as mutual fund houses, stockbrokers, and financial advisors, from associating with these influencers unless they are registered with SEBI.
The rising popularity of finfluencers on platforms like YouTube and Instagram has drawn attention due to concerns about their role in promoting financial schemes and stocks without sufficient accountability. SEBI’s recent notifications mandate that no financial entity or agent regulated by SEBI can engage with influencers providing investment advice, promoting returns, or recommending securities unless the influencer is properly registered with the Board.
Advocate Prashant Mali points out that finfluencers, when promoting certain stocks or financial instruments without proper registration, are not only violating SEBI guidelines but may also be breaching advertising regulations. According to these rules, individuals promoting financial products must also consume or use the product themselves. It has come to light that several influencers don’t even possess trading accounts, let alone invest in the stocks they recommend.
The regulatory crackdown extends to any indirect associations with finfluencers. Even interactions through WhatsApp, email, or any digital device that can be traced as having influenced financial decisions can bring entities or individuals under SEBI’s radar. Those found guilty of promoting fraudulent schemes or misleading advice may face similar legal consequences as the fraudsters themselves, according to Former IPS Prof. Triveni Singh.
Additionally, SEBI has provided a small window for partnerships in investor education, provided the influencers involved refrain from giving specific recommendations or projecting future returns. This ensures a balance between educating the public on financial matters and preventing unauthorized advice.
The regulation comes at a critical time, as the influence of finfluencers on investment decisions has been significant in recent years. By enforcing these new norms, SEBI aims to foster transparency and accountability in the financial advisory space while protecting retail investors from potential fraud.
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