While SIPs grew so did F&O: Why retail investors need to be protected from unregulated fininfluencers These unregulated individuals share information and offer advice to potential investors on various aspects of financial planning through platforms such as Facebook, Instagram, Twitter, and others. They provide guidance on a wide range of financial topics, encompassing market securities, mutual funds, insurance, and pension funds
Krishan Mishra
CEO, FPSB India
The disruption induced by the rise of social media platforms over the last decade and a half has had a pervasive impact on the way industries function, especially in large consumer markets like India. The 'personal finance' industry in India is an apt case study, which has witnessed a significant uptick in using social media platforms by individuals/organizations. These individuals, who are largely unregulated, share information and advice with prospective investors on a range of topics covering the entire spectrum of financial planning on social media platforms like Facebook, Instagram and Twitter and many others. Their counsel covers most financial instruments, including market securities, mutual funds, insurance and pension funds.
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} Notably, no stipulations define the eligibility criterion and qualifications under an established legislative framework in India. As a consequence, most of 'Financial Influencers' or 'Finfluencers' are ill-equipped to offer professional advice and guidance to investors, who commit their hard-earned money based on such information.
Action by regulators
India's financial regulators, like the Securities and Exchange Board of India (SEBI), are mandated by law to protect the interests of investors in securities and promote the development and regulation of the securities market. They are also empowered to take measures to prohibit fraudulent and unfair trade practices in the securities market.Cognizant of the risks posed by finfluencers, Indian regulators have taken various measures to regulate the activities of stakeholders in India's personal finance space. In June 2024, SEBI approved new regulations to regulate finfluencers and to address the growing risks from biased/misleading advice given on a commission-based model. As per the new rules, brokers and mutual funds are prohibited from using the services of unregulated financial advisors for marketing and advertising campaigns.
SEBI has also taken down more than 15,000 'content sites' by unregulated financial influencers as part of their efforts to safeguard investors' interests. The Reserve Bank of India's Financial Inclusion and Development Department, too, has released its Financial Awareness Messages (FAME) document, which calls on consumers to exercise due diligence before investing their money.
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Proposed solutions
While regulators acknowledge the challenges, and through various measures are trying to keep a check on unethical practices in the country, there is a need to create a robust enforcement mechanism to realize the stated objectives of the regulations. As the responsibility for regulating the financial sector in India is shared by multiple institutions, it is imperative to attain consensus while defining the 'collective risks' posed by unregulated finfluencers. As there are no cost barriers for entry of finfluencers in the Indian market, the approved regulations might not effectively prevent new, dubious outfits from emerging. Therefore, regulators in the country's financial system must work to create capacities for ensuring a consistent flow of market intelligence vis-à-vis such influencers.Enhancing the level of financial awareness in the country is equally important. Under the National Strategy on Financial Education, vulnerable groups must be identified and trained. A possible solution could be the creation of 'community trainers' in each district/division, who can identify the specific vulnerabilities of groups in their respective communities and plug information gaps.
Conclusion
While the move to regulate the activities of finfluencers is a welcome step, its smooth implementation hinges on seamless coordination among various agencies/departments of the Union government, regulators and educators at the grassroots level. At the same time, the government must also establish a framework of eligibility criterion to define 'recognized financial planners/advisors' irrespective of the medium/platform being used for dissemination. In addition to the eligibility criterion, all registering finfluencers must be mandated to apprise their audience of the potential risks associated with different categories of investments.Finally, the regulators and leading industry players must jointly develop a far-sighted strategy for expanding access to financial education and addressing systemic gaps at multiple levels.
(The author is CEO, FPSB India) #sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
