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Finfluencers, or financial influencers, have largely welcomed the proposed relaxations in regulations governing research analysts (RAs), feeling more inclined towards applying for registration following the consultation paper released on August 6. Although there are still some concerns, the suggestions regarding reduced educational qualifications and the elimination of industry experience requirements are seen as very encouraging.
However, market insiders caution that there may be unintended consequences. These include potentially encouraging individuals who lack competence in investing to register and allowing people to continue giving poor trading advice.
The consultation paper released by the Securities and Exchange Board of India (SEBI) is part of a broader strategy to encourage more unregistered entities or finfluencers to come under its regulatory umbrella.
Who Are Finfluencers?
Finfluencers are individuals who use social media platforms and other digital channels to share financial advice, investment tips, and market insights. Often lacking formal qualifications or regulatory oversight, finfluencers have gained substantial followings and can significantly impact investor behaviour. Importantly, finfluencers are not registered with SEBI, which means their advice does not come under regulatory scrutiny. While some provide valuable information, others may spread misinformation or promote high-risk investments, leading to potential financial harm for their audience.
Beneficial Changes
A finfluencer, speaking anonymously, mentioned that lowering the educational qualification requirement to a graduation level and eliminating the need for industry experience will definitely make it easier for more people to apply for registration. Currently, RA regulations require a minimum qualification of a postgraduate degree or diploma in relevant fields or a graduate degree with at least five years of experience in financial activities.
The consultation paper suggests that to attract young minds to the investment advisor (IA) and RA professions, the minimum qualification requirement should be relaxed to a graduate degree, and the experience requirement should be dispensed with.
There has been a lot of interest among finfluencers to register themselves following SEBI’s crackdown on unregistered entities and restrictions on associations between registered and unregistered entities. Such relaxations may encourage influencers with smaller followings to apply for registration to avoid regulatory issues and continue their associations with entities like stockbrokers.
Lingering Concerns
Larger influencers may still be concerned about compliance requirements for posting promotional content. RAs must get their advertisement/promotional content vetted by the Research Analyst Administration and Supervisory Body (RAASB). Financial influencers worry that this could mean every social media post or content may need to be cleared by the body.
Additionally, there are concerns about the fee-collection mechanism set up for RAs. Finfluencers often split their income across various businesses to reduce tax implications, and they worry that using the fee-collection platform may force them to channel all their income into one account, resulting in higher taxes.
Market insiders also highlight potential adverse consequences. RAs who trade have requested an easing of the rule that bars them from trading in security they have recommended 30 days before and five days after the recommendation. This rule is meant to prevent potential pump-and-dump schemes, but RAs argue that it also prevents them from benefiting from the good investment opportunities they identify.