SEBI Plans to Bring Finfluencers Under Regulatory Ambit
The Securities and Exchange Board of India (SEBI), represented by Kamlesh Varshney during the Mint Annual BFSI Summit & Awards, announced a plan to implement stricter norms for financial influencers, or finfluencers, into the Indian financial market.
Risks of Unregistered Finfluencers
Lately, the Indian financial market has been facing a major issue with the operations of unregistered finfluencers. Numerous investors who lack sufficient knowledge have fallen victim to unreliable financial advice. In response to this rising concern, SEBI is actively working on implementing regulations to protect naive investors.
Actions have already been taken against finfluencers offering unlawful investment advice on social media platforms. Furthermore, SEBI forbade brokers and mutual funds of intermediaries from collaborating with these unregistered finfluencers to advertise their services and products.
Aims for More Effective Monitoring
Varshney emphasizes that SEBI’s primary objective is to bring as many finfluencers as possible under the regulatory scope. Having a majority of them registered will simplify the process of monitoring them, ensuring their compliance with security laws, and identifying any violations.
Transitioning from enforcing regulations to implementing them, SEBI envisions making systematic changes based on industry feedback. The ultimate goal is to ensure that all finfluencers complying with the norms are registered.
Striking a Balance in Rule Implementation
Addressing concerns about constant alteration to rules, Varshney insists that SEBI aims to strike a balance. Recognizing the inherent fatigue that may arise from rapid-fire changes, the regulator hopes to limit the modifications to areas experiencing immediate risk. In cases where risk areas emerge, swift action is deemed necessary.
Not Against Short Selling, but Against Naked Short Selling
The discussion on the unregulated finfluencer market segued into the controversial topic of short selling securities in the light of the recent Adani-Hindenburg debacle. While SEBI does not oppose short selling, it is staunchly against naked short selling, considering it as a risky financial practice that could jeopardize the market’s integrity.
Preventing Misutilization of Client Funds
To strengthen the securities market and protect investors, SEBI has undertaken a slew of regulatory measures. Varshney highlighted the recent circular in July that requires brokers to upstream client funds. This decision emerged from the challenge of preventing the misutilization of client funds or securities, a prime example being the Karvy Broking scam.
Under the new policy, SEBI expects the client funds to be placed into separate bank accounts and upstreamed to the clearing corporation at the end of each day. This practice would remove the need for regular inspections and could effectively eliminate the risk of misuse of funds.
Cryptocurrencies: A Decision Not Yet Made
Varshney also remarked on the recent decision by the US Securities Exchange Commission (SEC) to permit Bitcoins. Although the decision could influence Indian policy, Varshney claimed SEBI currently has no mandate to regulate cryptocurrencies. He added that the decision ultimately falls to the concerned ministry, taking into account the Indian atmosphere and market condition.
Stricter Monitoring Ahead
Following the unprecedented growth in finfluencers who provide unregistered financial advice to the general public via social media, SEBI has decided to tighten its reins. Those influencing the financial market, majorly novice investors, without appropriate registrations and necessary monitoring could now look forward to stricter regulations. Further, the decision to include these influencers in the practicing regulatory net forms a part of a broad initiative, aiming at reinforcing the financial market’s robustness while safeguarding the interest of investors.
A Regulatory Net around Finfluencers
SEBI’s decision primarily stems from the need to control unregulated finfluencers, whose operations could pose serious threats to the integrity of the financial markets and the safety of raw investments. Varshney stated that SEBI’s agenda now includes bringing these influencers under the regulatory net, ensuring a more efficient way to monitor their activities. It will not only ease the monitoring process but also keep a check on their adherence to accepted security laws.
Finfluencers: A Rising Concern
With unregistered finfluencers becoming increasingly common, the magnitude of the problem they pose has reached concerning levels. To tackle this, Varshney reconfirmed that only registered influencers who comply with SEBI’s standards would be permitted to offer their financial advice in the Indian market.
A Balanced Approach to Rule Changes
While the regulatory body has been fairly active in making changes to the rules in recent times, Varshney assured that SEBI adopts a balanced approach. Recognising the possibility of administrative fatigue from too many changes, it aims to limit rule modifications to areas that pose an immediate risk and require swift action.
Short Selling vs Naked Short Selling
Discussing the issue of short selling securities in the wake of the Adani-Hindenburg incident, Varshney clarified SEBI’s stance. He reiterated that SEBI neither condemns nor discourages the practice of short selling. However, the regulator disapproves of naked short selling. Naked short selling, where short positions are taken without having the requisite security or assurance, is seen as too risky and therefore not considered permissible.
Client Funds Protection
To further safeguard the interests of the investors in the financial market, SEBI has introduced several measures. The misuse of client funds, as witnessed in cases such as the Karvy Broking scam, emerges as one of the significant challenges the regulatory body faces. To combat this, SEBI now requires brokers to park client funds in separate bank accounts and upstream them to the clearing corporation by the end of the day.
Considering Cryptocurrency Regulations
Varshney also touched upon recent developments regarding cryptocurrency regulations in the US. While US SEC’s endorsement of Bitcoin might have some bearing on India’s stance, Varshney cautioned that SEBI currently holds no authority to regulate cryptocurrencies. The final call rests with the concerned ministry, keeping in view the state of the Indian financial environment.
In conclusion, it is clear that SEBI is steadfastly working towards strengthening India’s financial market, protecting investors, and ensuring all parties at play abide by the regulation.
Disclaimer:
The material in this article was compiled using the most recent Acts, Rules, Circulars, Notifications, Provisions, Press Releases, and material applicable at the time. The completeness and correctness of the material ensured with due diligence. It is required of users of this material to consult the relevant, applicable legislation. The data given may change without prior notice and does not constitute professional advice. As a result, Estabizz Fintech disclaims all liability for the results of using such material.
