31-Oct-2023-Editorial

SEBI ORDERS ON FINFLUENCERS: A BAD INFLUENCE

The recent actions taken by the Securities and Exchange Board of India (SEBI) against financial influencers (finfluencers) highlight the need to ensure the flow of accurate financial information and safeguard the interests of investors. These influencers have gained prominence, particularly during the pandemic, as retail investors increasingly participate in the stock markets. While they can provide valuable financial advice, the surge in the number of finfluencers has raised concerns regarding their credibility, ethical practices, and influence over novice investors.

F-influencers

Financial influencers, or finfluencers, are those who provide financial advice and recommendations on social media platforms to investors.

Challenges Posed by Finfluencers:

Lack of Expertise: Many finfluencers lack a deep understanding of the complexities of financial markets. Their advice, often sensationalized to attract followers, may lack substance and reliability.

Misleading Claims: Some finfluencers resort to exaggerated clickbait-y claims to gain subscribers and monetize their platforms. Following such advice can lead to losses for inexperienced investors.

Ethical Concerns: There have been allegations that certain finfluencers engage in unethical practices to promote specific stocks to unsuspecting investors. These actions undermine market integrity.

Incentive Structures: The incentive structures of finfluencers, particularly those working on commissions, and their relationships with brokerages have raised controversy. These connections may compromise their objectivity.

Securities and Exchange Board of India

The Securities and Exchange Board of India (SEBI) is a statutory body established on April 12, 1992, as per the provisions of the Securities and Exchange Board of India Act, 1992. SEBI plays a crucial role in regulating and overseeing the securities market in India. Its fundamental functions revolve around protecting the interests of investors in securities and ensuring the promotion and regulation of the securities market.

Organizational Structure:

The SEBI operates with a structured organizational setup:

SEBI Board: The SEBI Board is the apex decision-making body of the organization. It includes a Chairman and several other members, both full-time and part-time, who contribute to shaping SEBI’s policies and regulations. These individuals play a crucial role in the governance of the securities market.

Committees: SEBI appoints various committees as and when required to address specific issues or challenges facing the securities market. These committees provide valuable insights and recommendations to address pressing concerns.

Securities Appellate Tribunal (SAT): SAT is a specialized body formed to safeguard the interests of entities that may feel aggrieved by SEBI’s decisions or actions. SAT is composed of a Presiding Officer and two other Members, and it possesses powers akin to those vested in a civil court. This tribunal provides an avenue for individuals or organizations to seek redressal when they believe they have been adversely affected by SEBI’s rulings.

SEBI’s Regulatory Actions:

The SEBI has taken decisive actions against finfluencers who engage in misleading activities. For instance, it barred Mohammad Nasiruddin Ansari from the securities market and ordered him to repay Rs 17.2 crore obtained through misleading practices.

In a separate case, P R Sundar settled with SEBI, agreeing to refrain from buying/selling securities for a year and paying a settlement amount while disgorging over Rs 6 crore.

These actions reflect SEBI’s commitment to regulate unregistered investment advisors and strengthen norms for financial influencers.

The Dual Role of Finfluencers:

While finfluencers have raised concerns, they can also play a valuable role in disseminating financial education and advice to individuals unfamiliar with the intricacies of financial markets.

In a growing economy with an increasing number of individuals entering the stock markets, it is essential to ensure that accurate financial information is accessible, investors are educated, and their interests are protected.

Conclusion:

The actions taken by SEBI against finfluencers underscore the importance of striking a balance. While addressing the challenges posed by some finfluencers, it is crucial to recognize their potential to contribute positively to the financial education of investors. As India’s economy expands, ensuring the free flow of reliable financial information and protecting investors will become increasingly critical. Regulatory efforts must focus on promoting ethical practices and transparency within the finfluencer community to maximize their beneficial impact while safeguarding the interests of investors.