Capital markets regulator Securities Exchange Board of India (Sebi) last month fined You Tuber PR Sundar ₹6.5 crore and banned him from the market for a year for market-related violations.
He is an options trader who used to run the blog prsundar.blogspot.com, where he charged money in return for providing advisory services. Although imposition of penalty by the regulator may be a one-off case, the cases of inducement and even fraud on social media are not uncommon.
In March, actor Arshad Warsi and his wife were barred from equity markets by the regulator for manipulating share prices through misleading videos. However, he got an interim relief from the Securities Appellate Tribunal later that month.
In the wake of growing number of such cases of alleged fraud and inducements, markets regulator recently raised a number of concerns with regards to social media stars who have a huge fan following, sometimes in millions.
For instance, Pushkar Raj Thakur has a massive fan following of 8.79 million on YouTube, CA Rachana Ranade has over 4.45 million subscribers, and Warikoo, an author and online educator, reaches out to his 2.94 million subscribers on YouTube.
The regulator is now working on a discussion paper to regulate finance influencers which would be released in a couple of months, as announced by the Sebi chairperson Madhabi Puri Buch recently.
The regulator's top boss categorically mentioned that there is no problem when these influencers educate the investors, but when there is an element of inducement or a promise of guaranteed returns, then the red line gets crossed -- something that needs to be curbed.
The regulator also wants to control these influencers' dealings with regulated entities.
Walking on the thin line
Presence of these influencers is often seen in a positive light, even by those who are qualified professionals.
CA Kanan Bahl, a finance educator who is popular on the social media, says, he belongs to a family of eight chartered accountants but none had subscribed to a term or health insurance.
He also says that he would have remained unaware of the importance of these instruments without these influencers.
“The real problem is with those guys who entice gullible new entrants by sharing fake or incomplete trading profit screenshots. These people sell courses worth tens of thousands or even in lakhs without actually making money in markets. When new people make losses, they think that markets are not the instruments of wealth creation,” he says.
“However, if you look at most (not all) major creators in the finance space, they have been a net positive to the financial literacy of our country,” he adds.
Only qualified professionals?
Some argue that only qualified professionals or licensed practitioners be allowed to become influencers, while others believe that it would violate the principles of freedom of expression.
On this, Ravi Saraogi, Co-founder, Samasthiti Advisors, says, “From a regulatory point of view, it would be problematic if only registered investment advisors (RIAs) are allowed to speak on finance and investments on the social media.”
“That would conflict with the established principles of freedom of speech. But it doesn't mean anybody should be allowed to say anything on the Internet. For instance, it should be prohibited to guarantee the returns, and also to make false promises. Also, if the fin-fluencer has entered into a kind of financial arrangement with an entity, it should be disclosed to the viewers,” he adds.
Deepesh Raghaw, Founder of Personal Finance Plan, says, “There is no black and white answer but these influencers have managed to reach far more people than the entire RIA community can. There are both good and bad parts to this (phenomenon). They should not be crushed for the sake of freedom of speech. But as they say — with great power comes great responsibility. Therefore, there should be some form of regulations going forward – some of which can come internally, while some can be enforced by the regulator.”
Saraogi also emphasises that the registered investment advisors are supposed to adhere to higher standards since they have a higher responsibility.
“But it does not mean those who don't have a license do not have any responsibility. Although their guidelines may not be as strict as for the RIAs, but there should be some guidelines,” says Saraogi.
To sum up, finance influencers have certainly made a mark by their interesting videos and posts which they share with religious consistency. They are not expected to say whatever they please since they have millions of followers, some of whom make investing decisions based on their advice alone.
Soon, the markets regulator will come up with its discussion paper that will put the proposed guidelines in writing.