Why is it in the news?

• Last week, SEBI barred Mohammad Nasiruddin Ansari, a financial influencer, from the securities market. Ansari was ordered to pay back Rs 17.2 crore for allegedly misleading clients and influencing securities deals.
• In May, P R Sundar, another financial influencer, settled a case with SEBI and agreed not to buy/sell securities for a year. Sundar’s case resulted in payment of a settlement amount and disgorgement of over Rs 6 crore.
• These SEBI actions highlight a move against unregistered investment advisors and stricter norms for financial influencers.

Understanding Financial Influencers (Finfluencers)

• They are the individuals with significant social media presence.
• They offer financial advice, share money management experiences, and discuss investment topics.
• Topics include stocks, budgeting, property, cryptocurrency and other financial trends.
• Large following influences audience financial decisions.
• Their prominence increased during the pandemic due to higher retail investor market participation.

However, the surge in finfluencers led to the following issues

• Emergence of self-proclaimed experts with limited market knowledge.
• Concerns over qualifications and potential risks of their recommendations.
• Some influencers make exaggerated claims to attract subscribers and monetize their platforms.
• Following their advice has sometimes harmed novice investors.
• Some may use unethical means to influence stock investments.

Regulatory Response

• SEBI aims to address concerns surrounding finfluencers. Their incentive structures and ties with brokerages are under scrutiny.
• Issued a consultation paper to limit the involvement of SEBI-registered entities with unregistered finfluencers.

Way Forward

• With the economy’s growth and increased individual participation in stock markets, ensuring the availability of accurate financial information is crucial. However, educating investors and safeguarding their interests will be of paramount importance.
• To ensure the credibility and reliability of finfluencers, SEBI needs to establish clear regulatory guidelines, while finfluencers must prioritize transparency and continuous education. Investors, in turn, should approach finfluencer advice with diligence, cross-checking information from trusted financial sources.