Regulatory Hurdles on ‘Finfluencers’ in India

Influencer marketing is defined as a form of social media marketing According to Statista, the global influencer market size has more than doubled in value since the year 2019. Currently, its estimated value is USD 21.1 billion. The ever-expanding platforms of social media are used by marketers and influencers to bridge the gap between brands and consumers.

Within the spectrum of social media influencers, the last few years have witnessed the rise of financial influencers. Commonly known as finfluencers, are influencers who give information and advice on a wide variety of financial topics that include stock market trading, personal finance, and mutual funds. They use various social media platforms, with YouTube being their medium of choice. Such financial influencers post short videos in either English or even regional languages to connect with small-town investors. Some popular finfluencers have a following that runs into millions.

Rise of Finfluencers in India
Case of PR Sundar & Mansun Consultancy
Regulating Finfluencers

Rise of Finfluencers in India

The National Center for Financial Education conducted a survey in the year 2019 that highlighted the low financial literacy rates in the country (27%). This played a leading role in the large-scale popularity of financial advice videos from various financial influencers. First-time investors, specifically from far-flung towns and cities were drawn to these videos. The pandemic and the resulting lockdowns saw an explosion in the popularity of finfluencers in India as millions of new investors entered the market. Trading was democratized as broking firms-built apps that were user-friendly, the availability of affordable smartphones was easy, data plans became cheaper and the rise of digital payments helped further ease for new entrants into the investment market. The gap that was then created by the lack of financial knowledge was fulfilled by finfluencers.

Case of PR Sundar & Mansun Consultancy

The financial influencer P R Sundar was running a website named www.prsundar.blogspot.com through which he offered various advisory services instead of different payment packages. The collected fees that were received using a payment gateway were linked to his company Mansun Consultancy Pvt. Ltd. The company was founded in June 2017 with two promoting directors, Mr. P. R. Sundar and Ms. Mangayarkarasi Sundar.

The Securities and Exchange Board of India (SEBI) received two references that stated that Sundar was offering financial consulting services through Mansun Consultancy without obtaining the necessary SEBI registration. This prompted the market regulator to issue a ‘show cause’ notice in May 2022 followed by a supplementary show cause notice in November 2022 where it alleged that the website had a tab titled ‘Advisory’ and that the business mentioned as per KYC documents of ICICI Bank and Razorpay stated it as a share marketing consultancy.

SEBI had discovered that Mansun Consultancy was recommending purchasing, selling, and dealing in securities which was, then, communicated to clients. All these activities come under the purview of a registered investment advisory business. It is important to note that Sundar had over a million followers on YouTube and another hundreds of thousands on Twitter.

To quickly and efficiently deal with this breach, Mansun Consultancy has agreed to pay a settlement of INR 15,60,000/-each, for a total of Rs. 46,80,000/- to SEBI, as well as a disgorgement amount of Rs. 6,07,69,863/, with interest at 12% per year from June 1, 2020, till the date of submission of the RST. Apart from this, the firm and its promoters have also agreed to refrain from buying, selling, or dealing in securities for one year from the passing of the settlement order.

SEBI’S action against P R Sundar has been welcomed by registered investment advisors who have been, for some time, raising the issue of disparity in regulations between them and the finfluencers.

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Regulating Finfluencers

Union Finance Minister Smt. Nirmala Sitharaman had addressed the concerns that are circling the finfluencer community and had warned against the dangers of Ponzi schemes that offer financial solutions. She clearly stated that since there was no current proposal to regulate influencers, a cautious approach was necessary –

“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.”

SEBI issued an advertisement code in April 2023 for investment advisors and research analysts to strengthen their compliance with the IA regulations. Under the stipulations of this code, any communication, whether audio-visual, text messages or messaging platforms, issued by or on behalf of an investment adviser that may influence investment decisions requires prior approval from BASL (BSE Administration & Supervision Ltd.). This is a first step towards promoting and regulating the growth of the finfluencer community.

Conclusion

The finfluencer community is emerging rapidly and at an unprecedented pace. SEBI is striving to regulate a segment that was not even in existence half a decade ago. Hence, it does not have a regulation playbook to rely on and, essentially, is forging its regulatory path in a segment that is also highly fragile to unruly players. Having said this, finfluencers play a critical role in financial literacy. Hence, SEBI has the unenviable task of regulating the segment without undermining its contribution. Time will reveal how SEBI designs its regulations that allow the finfluencer segment to function optimally.

FAQs

Who are Finfluencers?

Finfluencers are influencers who give information and advice on a wide variety of financial topics that include stock market trading, personal finance, and mutual funds.

What did SEBI issue for investment advisors and research analysts to strengthen their compliance with the IA regulations?

SEBI issued an advertisement code for investment advisors and research analysts.   It stated that any communication, whether audio-visual, text messages, or messaging platforms, issued by or on behalf of an investment adviser that may influence investment decisions requires prior approval from BASL (BSE Administration & Supervision Ltd.).