Finfluencers Registered with AMFI may face SEBI scrutiny; Know Why?
The Securities and Exchange Board of India (SEBI) is stepping up its examination of financial influencers, also referred to as “finfluencers,” who are registered as mutual fund distributors (MFDs) with the Association of Mutual Funds in India (AMFI). This is all part of SEBI’s larger initiative to stem the spread of financial misinformation on social media.
Historically, MFDs have made commissions by having direct client contact. With the advent of social media, however, some have succeeded in using their online status to tap into a wider market and combine financial advice with social influence. While others focus on the sale of mutual funds, others earn a living from sponsored content and online courses. This new scenario has raised concerns about the possibility of misinformation and conflict of interest.
SEBI Chairperson Madhabi Puri Buch has stressed the importance of differentiating between registered entities and unregistered influencers. The regulator has suggested that SEBI-registered organizations not be followed by unregistered creators who provide stock analysis or performance statements unless the content is purely educative in nature. This is to safeguard investors against spurious financial advice and ensure only skilled people provide investment suggestions.
Despite these guidelines, there remains ambiguity about handling registered finfluencer distributors under AMFI. None of the SEBI consultation papers or the AMFI code of conduct addresses this intersection directly and therefore leaves opportunity for mistakes and confusion. Legal professionals opine that even though some guidelines are anticipated, finfluencers will need to comply with current AMFI and SEBI guidelines, seek mandatory certifications, be clear, reveal potential conflicts of interest, and comply with advertisement standards. Such pre-emptive steps are considered obligatory to prevent regulatory action and provide confidence for investors.
SEBI has also acted against unregistered investment advisers making their pitches on social media platforms. Warning notices have been sent to nearly 20 individuals since May, cautioning them against making stock recommendations without becoming registered. Such actions are serious offences, and the regulator has said strict action will be taken if such unregistered activity is repeated.
In consideration of further controlling the impact of finfluencers, SEBI has recommended a new fee payment system for registered research analysts and investment advisers. This is in an attempt to assist investors to identify and deal with registered advisors only and stop the impact of unregistered finfluencers. The regulator invited public comments on this recommendation, reflecting its interest in collaborative policymaking in managing the challenges presented by financial influencers.
As the space for financial advisory keeps expanding with the integration of social media, SEBI’s efforts also demonstrate the imperative for the presence of oversight to safeguard investors against deception and preserve the integrity of electronic financial advice being communicated.
