Sebi board tightens rules on use of financial influencers

The Securities and Exchange Board of India (Sebi) has approved new regulations to oversee unregistered financial influencers, commonly known as finfluencers, in response to growing concerns about the potential risks associated with their advice, which may be biased or misleading. These influencers often operate on a commission-based model.
In addition to regulating finfluencers, Sebi has introduced a fixed price process for delisting frequently traded shares and established a delisting framework for Investment and Holding Companies (IHC).The regulator has also decided to remove financial disincentives for the managing director and chief technology officer of exchanges and other market infrastructure institutions (MIIs) in the event of technical glitches.
Who are finfluencers
Finfluencers, a blend of “financial influencers,” have emerged as a significant force in the Indian stock market, providing investment advice and information to millions of retail investors through social media platforms like YouTube, TikTok, and Instagram.
These influencers, often from smaller cities, create content primarily in Hindi or regional languages to attract a large non-English speaking audience.
The rise of finfluencers can be attributed to India’s low financial literacy rate of 27% and the influx of new investors during the Covid-19 pandemic. With the democratization of trading through new-age broking apps and affordable smartphones, many first-time investors turned to finfluencers for guidance.
However, the lack of financial education and the focus on market updates by business news channels created a vacuum that finfluencers have been filling.
The popularity of finfluencers is evident from their massive subscriber counts, often exceeding those of leading broking firms. This has resulted in substantial earnings for the most successful finfluencers, with estimates ranging from Rs 15 lakh to Rs 30 lakh per month.
However, the low barriers to entry in this space have also led to increased exposure to potential bad actors and questionable advice.
New rules
Under the new rules, brokers and mutual funds are prohibited from using the services of unregulated financial influencers for marketing and advertising campaigns. However, financial influencers engaged in investor education will be exempt from these restrictions. The regulated entities will be responsible for ensuring that the individuals they associate with adhere to the rules of conduct set by SEBI, including avoiding promises of assured returns.
Furthermore, Sebi has introduced new criteria to determine which stocks can be linked to derivative products, such as futures and options, as proposed in a recent discussion paper. The total number of stocks eligible for derivative trading is expected to increase slightly, according to Sebi chair Madhabi Puri Buch.
Lastly, the regulator has approved changes to delisting rules, making it easier for companies to exit from stock exchanges. Companies can now offer their shareholders fixed prices for shares as an alternative to the current reverse book-building mechanism. The fixed price must be at least 15% above a floor price, which will be determined by rules set by the regulator.
(With inputs from agencies)