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Business News/ Money / Personal Finance/  Sebi's Buch on finfluencer regulation: 'Something is cooking'

Madhabi Puri Buch, chairperson of the Securities and Exchange Board of India (Sebi), has hinted that discussions are on for the implementation of regulatory measures for financial influencers, popularly known as 'finfluencers'. Her comments came following a query from Mint about regulating stock brokers who have revenue-sharing arrangements with these influencers.

During a gathering hosted by the Association of Mutual Funds in India (AMFI), Buch was asked about Sebi's stance on this issue. She replied cryptically, stating, "Something is cooking." However, she refrained from providing further details.

Finfluencers typically promote affiliate links for opening trading accounts across their social media platforms, including Youtube, Instagram, and their own websites. Every time a user initiates a trade via an account opened through these links, the respective stock broker offers a percentage of the brokerage fee to the influencer who posted the link. As the number of demat accounts has more than doubled since 2021, with over 61 million new accounts created, this method has become a significant revenue source for influencers.

This practice has stirred controversy due to the absence of disclaimers about the nature of these affiliate links. Market experts suggest that such arrangements could motivate finfluencers to encourage their followers to trade more actively since their income is directly proportional to the trading volume.

Almost all content creators did not have a disclaimer stating how they earned from these affiliate links. According to market experts, this may incentivize finfluencers to nudge viewers to actively buy and sell securities as their incomes are directly tied to it.

Several prominent firms like Zerodha, Upstox, Angel One, and 5 Paisa reportedly have such revenue-sharing practices. Zerodha, for example, gives 10% of derivative transaction fees to the associated affiliate holders. According to Sebi, nearly 90% of individuals engaging in derivative trading end up incurring losses.

Questionnaires earlier sent by Mint to these firms did not elicit a response.

In a circular dated February 2. 2023, National Stock Exchange (NSE) stated that any payment made by brokers to influencers/bloggers would require prior approval of the exchange and should include certain standard disclaimers. The circular also said influencers with more than 10 lakh followers (per social media handle) cannot be part of advertisements. Mint could not ascertain if the payment made by stock brokers to finfluencers through the affiliate channel is considered an advertisement that needs prior approval.

Sebi has prohibited mutual funds, registered investment advisors (RIAs), and research analysts (RAs) from issuing advertisements through influencers with more than 10 lakh subscribers. No such restrictions though exist for stock brokers. The market regulator classifies influencers having more than 10 lakh followers on any of their social media handles as celebrities.

Meanwhile, Buch said that Sebi is in consultation with representatives from the RIA community regarding the new advertisement code released by BASL. Among other things, the new ad code included paying an upfront fee of 3000 (for individuals) and 6000 (for corporates) for various forms of advertisements.

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Updated: 31 May 2023, 11:08 AM IST
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