SEBI plays whack-a-finfluencer
Is it too early for a sophisticated regulatory code for finfluencers?
Financial prudence, often to the extent of frugality, is a value highly prized by the Indian middle class. In many ways, (a large population of) Indians represent an antithesis to consumerist tendencies prevalent elsewhere. More often than not, we’re impervious to overspending and extremely conservative about where to park our disposable income.
But there’s something at play which has managed to break through our defences and launch an attack on the idea of the Homo economicus – unlicensed investment advisors on social media or, ‘finfluencers’.
Unregulated financial advice on social media is riddled with three major problems.
The influencer
The fundamental problem with finfluencer content is that its creators may not always have the required expertise to be peddling financial advice. However, in many cases such content creators may also have sterling credentials. But the fact remains that they aren’t licensed by any regulatory authority to do so.
It is also argued that the motive behind such content creation may be ethically questionable. It’s against my instinct to question the motive behind the action, but the ask becomes critical when you examine just how deep the rot runs.
For instance, a sting operation reportedly revealed that when a fake digital marketing company approached finfluencers to promote two sham campaigns, they did not verify the authenticity of the offer, were quick to quote fees (as high as Rs 7.47 lakh for a post) and sign NDAs, and didn’t so much as express interest in knowing the name of the companies they were supposed to be campaigning for.
Evidently, the money motive compels finfluencers to disseminate poorly researched information. It doesn’t help that often, they will go lengths to position themselves as users of endorsed products and services, and even participants of the schemes they sell.
The medium
Here’s a simple logic – financial information is complex to distribute and consume, but the mediums used by financial influencers aren’t designed to share complex information. It’s widely accepted that social media platforms cater to our ever-shrinking attention spans, and keep devising new ways to flood us with information, but in digestible snippets (case in point, Instagram reels and TikTok).
In addition to this, when the idea is to prioritise entertainment before information, how are consumers expected to make informed decisions?
The consumer
This one may be slightly controversial, but the consumers of such content aren’t really helping their own case. We live in a time when false information shared over social media has had devastating and, sometimes, lethal consequences. Falling prey to financial disinformation, by contrast, seems like an easy trap to set foot in.
The question is – to what extent can a state-run regulator influence the decisions of private citizens?
Regulatory interventions
The Securities and Exchange Board of India (SEBI) recently published a consultation paper seeking comments and suggestions on tackling what is becoming a dangerous practice on social media. In it, the regulator suggested the following measures to tackle it:
SEBI registered entities shall not associate with unregistered entities and finfluencers for promotional activities.
They cannot share confidential information about their clients with these entities.
Finfluencers registered with SEBI or stock exchanges must post disclaimers and display their registration number, contact details, and investor grievance redressal helpline.
They should comply with SEBI’s advertisement guidelines.
Registered entities should not pay commissions based on referrals as fees.
Registered entities should actively dissociate themselves from unregistered ones.
In fact, SEBI isn’t the only body governing illegitimate paid promotions in the financial sector. The Advertising Standards Council of India (ASCI) also recently instructed experts promoting financial products and services to be certified by a regulatory body like SEBI and to disclose their certifications during these promotions.
Have regulators said ‘when’ too soon?
Regulators in India and abroad are taking action, as seen in several cases (that sometimes involve famous personalities) – Bollywood actor Arshad Warsi was barred by SEBI from the securities market for allegedly marketing a pump-and-dump scheme; last year, Kim Kardashian paid a hefty fine for promoting a cryptocurrency token without disclosing that she was paid to endorse it.
These instances routinely make the headlines, but it bears remembering that a lot is left to be desired in terms of overall regulation. For instance, the SEBI recommendations focus on cutting off the flow of compensation from regulated entities to unregulated ones to check the menace.
Both SEBI’s and ASCI’s instructions, while coming from the right place, leave a huge gap in terms of implementation – they place additional burdens on the regulated entities by mandating disclosures and keeping tabs on their associations with unregulated entities.
And here’s the biggest gap in regulation of finfluencers as it stands right now – it targets the distributors of such information, giving little thought to the medium through which it is shared, or and even the consumers who stand to lose the most.
Conclusion
It may take a lot for regulators to keep pace with the developments in social media and digital financial services. It’s easy for things to slip through the cracks, making it impossible to bring about sweeping reform all at once. This leaves us with the question – is piecemeal regulation better than no regulation?
The fact that SEBI and other regulators play whack-a-mole with problems as and when they arise might just be the best course of action for now. Until then, we wait for a larger regulatory code.
That’s all from me this week.
Cheers,
Rajat