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Context: The Securities and Exchange Board of India (SEBI) is developing a set of rules for financial influencers, or 'finfluencers', who use social media to share their opinions and experiences on money and investment matters. Finfluencers post videos on topics such as budgeting, investing, property buying, cryptocurrency advice and financial trend tracking.

Details

• The purpose of the regulations is to protect investors from unregistered investment advisors who give unsolicited stock tips on social media platforms. Some of these advisors may have ulterior motives or vested interests in promoting certain stocks or companies. Moreover, some companies may use finfluencers to manipulate their share prices through false or misleading information.
• This can result in fraud, data theft, technological risks, diversion of funds, erosion of shareholder wealth, financial crisis and reputational damage.

Objectives

• To ensure that finfluencers disclose their credentials, sources of information, conflicts of interest and risks involved in their recommendations.
• To follow ethical standards and avoid making exaggerated or unrealistic claims.

Who are finfluencers, and why are they under SEBI’s scrutiny?

• Finfluencers are people with public social media platforms offering advice and sharing personal experiences about money and investment in stocks. They have gained popularity in recent years, especially among young and novice investors who are looking for guidance and inspiration in the financial markets.
• Finfluencers claim to provide unbiased, honest and transparent information about various investment options, strategies and risks. They also showcase their portfolios, returns and mistakes to their followers.

Features that distinguish them from traditional financial advisors or media outlets.

• They are often young, relatable, and diverse, representing different backgrounds, experiences, and perspectives on money matters.
• They use various formats and channels to communicate with their audience, such as videos, podcasts, blogs, newsletters, e-books, courses, etc.
• They leverage the power of social media algorithms and networks to reach and grow their audience, as well as to interact with them through comments, polls, Q&A sessions, etc.
• They monetize their influence by partnering with brands, sponsors, or platforms that align with their values and niche, or by creating products or services that cater to their followers' needs and interests.

 Significances for both consumers and the financial industry

• They provide accessible, affordable, and personalized financial education and guidance to millions of people who may not have access to or trust traditional sources of financial information or advice.
• They inspire and empower people to take charge of their financial well-being and to achieve their financial goals by sharing their own stories, challenges, successes, and failures.
• They challenge and disrupt the status quo of the financial industry by offering alternative views, opinions, and solutions that may not be endorsed or promoted by mainstream financial institutions or media.
• They create a sense of community and belonging among their followers who share similar values, interests, and aspirations regarding money and life.

Concern

• Not all finfluencers are trustworthy or qualified to give financial advice. Some of them may have ulterior motives, such as promoting certain stocks or products for commissions or fees or manipulating the market by creating hype or panic.
• Some of them may also lack the necessary knowledge, skills or credentials to offer sound and reliable advice.
• They may mislead, misinform or misrepresent the facts and figures to their audience.
• They may violate the laws and regulations governing the securities market in India.
• They may be exposed to cyberattacks, trolls, haters, or competitors who may try to sabotage their reputation or influence.

Steps taken by SEBI

• The Securities and Exchange Board of India (SEBI) has recently issued a notice to some finfluencers, asking them to disclose their sources of income, affiliations, qualifications and disclaimers on their social media posts.
• SEBI has also warned the public to be cautious and vigilant while following any finfluencer or taking any investment decision based on their recommendations.
• SEBI has said that it will take appropriate action against any finfluencer who is found to be indulging in fraudulent or unfair trade practices or violating the SEBI Act, rules and regulations.

The notice from SEBI is a welcome step to regulate and monitor the activities of finfluencers in India. It will help to protect the interests of investors and maintain the integrity and stability of the securities market. It will also encourage finfluencers to be more responsible, ethical and professional in their conduct and communication.

Finfluencers need to take proactive steps

• They should disclose their qualifications, affiliations, sources of income and any potential conflicts of interest to their followers and partners.
• They should verify the accuracy and validity of the information or advice they provide or share from other sources.
• They should comply with any applicable laws or regulations regarding financial activities or communications in their jurisdiction or platform.
• They should protect their online security and privacy by using strong passwords, encryption tools, antivirus software, etc.

Way Forward

• Finfluencers can play a positive role in spreading financial literacy and awareness among the masses, but they can also pose serious risks and challenges if they are not regulated properly. Therefore, both finfluencers and investors need to be aware of their rights and responsibilities and exercise due diligence and caution while engaging in the financial markets.

Must-Read Articles:

Finfluencers: https://www.iasgyan.in/daily-current-affairs/finfluencers

Guidelines for social media influencers: https://www.iasgyan.in/daily-current-affairs/guidelines-for-social-media-influencers

Securities and Exchange Board of India (SEBI): https://www.iasgyan.in/daily-current-affairs/securities-and-exchange-board-of-india-sebi

PRACTICE QUESTION Q. How can followers protect themselves from misleading or harmful Finfluencers? 1. By doing their research and verification before following any advice. 2. By seeking a second opinion from a professional financial advisor or planner. 3. By reporting or flagging any suspicious or unethical content or behaviour. Which of the following Statement is/are correct? (A) 1 and 2 only (B) 2 and 3 only (C) 1 and 3 only (D) 1, 2 and 3  Answer: D Explanation: All of the above are ways that followers can protect themselves from misleading or harmful Finfluencers. Followers should not blindly trust or follow any advice they see online, but rather do their due diligence and cross-check the information from multiple sources. Followers should also consult a qualified financial professional if they need more in-depth or personalized guidance on their financial goals or situations. Followers should also report or flag any content or behaviour that violates the terms of service or ethical standards of the social media platforms they use.

https://indianexpress.com/article/explained/explained-economics/who-finfluencers-sebi-crackdown-8688283/