As online financial influencers gain popularity in India, regulators attempt to clamp down on rogue players

GROWTH OF ONLINE FINANCIAL INFLUENCERS

Financial influencers like Ms Tolkar are a fast-growing segment among the 3.5 million content creators in India.

Their dramatic rise coincided with a boom in the stock market, the ease of online trading, and the COVID-19 pandemic.

Millions of ordinary citizens in India – where the financial literacy rate stands at 27 per cent – were eager to invest and many of them went online in search of advice. 

However, a lack of regulation has led to unscrupulous behaviour such as charging subscription fees for which users get little or nothing in return.

The market is also rife with so-called “pump-and-dump” schemes, where investors are urged to buy a particular stock so that its value is artificially inflated. The individual behind the scheme then sells those shares to themselves at a profit.

Managing director of Mumbai-based Bexley Advisors, Mr Utkarsh Sinha, noted that online financial advice is a rapidly evolving space with no entry barriers. He added that influencers may be trusted even if they do not have qualifications. 

“There’s a lot of potential for mis-selling, for pump-and-dump schemes, and therefore regulation of this space is required,” he said.

“But at the same time … it’s very difficult to swat these flies because they come out a dime a dozen.” 

REGULATING FINANCIAL INFLUENCERS

Nevertheless, India’s market regulator, the Securities and Exchange Board of India (SEBI), has been taking steps against potentially harmful content, in line with countries like the United Kingdom and Singapore which have rules on financial influencers in place.

Under the new SEBI regulations approved in June, entities like brokers and mutual funds are now barred from working with individuals who provide investment advice on stocks and bonds despite not being registered with the regulator.

In July, SEBI said it had identified almost 9,000 instances of misleading or unlawful social media content related to markets. 

It has since urged platforms to take legal action and is looking at ways to help people register as investment advisors. Nevertheless, it acknowledged that its requirements, regarded as tough, have led to limited take-up.