The Securities and Exchange Board of India (SEBI) has initiated the process of creating regulations for financial influencers, or ‘finfluencers’. These individuals are known for using their social media platforms to offer advice and share personal experiences relating to investments, budgeting, and other financial matters. This move comes in response to the rise in unregistered advisors offering unsolicited investment advice, as well as issues related to digital data theft and technological risks.
Why Regulating Finfluencers is Necessary
The need for clear guidelines and regulations for finfluencers has become critical due to a surge in unregistered investment advisors offering unsolicited stock tips across various social media platforms. Additionally, several companies have manipulated social media platforms to artificially inflate their share prices using finfluencers.
Moreover, there is no distinction between listed and non-listed companies when it comes to fraudulent activities. The rise in digital data thefts and technological risks further exacerbates this issue. Fraudulent diversion of funds or assets not only leads to financial losses for shareholders but also results in anarchy, financial crisis, ethical dilemmas, and reputational risk.
Understanding SEBI and Its Functions
SEBI is a statutory body that was established in 1992, as per the Securities and Exchange Board of India Act, 1992. Its primary functions are safeguarding the interests of investors in securities and promoting and regulating the securities market in India.
SEBI’s headquarters is located in Mumbai, India. Its board comprises a Chairman, two members from the officials of the Ministry of the Central Government dealing with Finance, one member from the officials of the Reserve Bank of India, and five other members – at least three of whom must be full-time members appointed by the central government.
In addition to its board, SEBI also establishes various committees as and when needed to address urgent issues.
The Securities Appellate Tribunal (SAT)
SEBI has also constituted a Securities Appellate Tribunal (SAT) to protect entities that feel wronged by SEBI’s decisions. The SAT, which includes a presiding officer and two other members, has the same powers as a civil court.
Further, an appeal can be made to the Supreme Court if a party is dissatisfied with the decisions or orders of the SAT, providing another layer of protection and accountability in the financial sector.
Future Implications
With the rise in popularity of financial influencers and the potential risks associated with unregulated advice, SEBI’s move to regulate finfluencers marks a significant step towards securing the interests of investors and maintaining the integrity of India’s financial markets. It also sets a precedent for other countries to follow suit and take steps towards regulating financial advice on social media platforms.