Regulation of Finfluencers: SEBI’s New Guidelines

  Regulation of Finfluencers: SEBI’s New Guidelines

Why in News?

The Securities and Exchange Board of India (SEBI) has introduced new guidelines for unregistered financial influencers (Finfluencers), prohibiting regulated entities from engaging with them. This move comes amid concerns over market manipulation and misleading financial advice.

What is a Finfluencer?

A Financial Influencer (Finfluencer) is an individual who shares investment-related content on social media platforms, offering advice on:

• Stock market trading
• Mutual funds and insurance
• Personal finance strategies

Sources of Income for Finfluencers

1. Advertisements – Earning revenue based on views and engagement.
2. Brand Collaborations – Partnering with financial companies to promote investment products.
3. Affiliate Marketing – Encouraging viewers to sign up for financial services via embedded referral links.

Reasons Behind the Rise of Finfluencers

1. Low Financial Literacy:
   • India has a financial literacy rate of only 27% (National Centre for Financial Education, 2019).
   • Finfluencers fill the knowledge gap by making financial education accessible.
2. Growth in Retail Investments:
   • Retail investors’ participation in the cash market increased from 33% (FY16) to 45% (FY21) (National Stock Exchange).
   • More people seeking investment advice and stock market insights.
3. Pandemic-Driven Investor Surge:
   • New client registrations jumped from 0.6 million (June 2020) to 1.5 million (June 2021).
   • Social media and mobile trading apps have democratized investing.
4. Technological Advancements:
   • Easy-to-use trading apps (e.g., Zerodha, Groww) empower retail investors.
   • Affordable smartphones and digital payment systems boost online financial education.

Concerns Over Finfluencers

1. Lack of Regulation:
   • No standardized qualification or liability mechanism.
   • Investors at risk of fraudulent or biased advice.
2. Market Manipulation:
   • Some finfluencers promote stocks for personal gain, misleading investors.
   • Example: Salasar Technologies stock manipulation scandal.
3. Encouraging High-Risk Investments:
   • Many finfluencers push high-risk schemes without disclosing potential losses.
4. Unreliable Financial Advice:
   • Prioritization of engagement metrics (likes, shares) over accurate and well-researched guidance.
5. Ethical Concerns:
   • Undisclosed promotions and conflicts of interest.
   • Risk of insider trading and misrepresentation.

Regulatory Actions by SEBI

• SEBI (Investment Advisors) Regulations, 2013 – Mandates registration for paid financial advisors.
• Prohibition on Regulated Entities Associating with Unregistered Finfluencers.
• Advertising Standards Council of India (ASCI) Guidelines:
  • Mandatory disclosure for paid promotions.
  • Finfluencers must register with SEBI to provide investment advice.

Way Forward

1. Define Finfluencers and Investment Advice: Establish clear legal definitions and accountability measures.
2. Mandatory Registration: Require disclosure of affiliations, certifications, and risk warnings.
3. Transparency and Fact-Based Advice:
   • Real-time digital monitoring.
   • Enforce a Code of Conduct for fair and ethical financial content.
4. Stronger Investor Grievance Redressal:
   • Platforms should offer tools for reporting misleading financial content.
5. Investor Awareness Initiatives:
   • SEBI and market players must conduct financial literacy campaigns.
6. Self-Regulatory Organizations (SROs):
   • Establish an independent industry body to oversee finfluencers.
7. Third-Party Performance Validation (PVA):
   • Independent verification of finfluencers’ financial claims to prevent fraud.

Global Examples of Regulation

• Australia: Unlicensed financial advisors face up to 5 years in jail.
• European Securities and Markets Authority: Defined investment recommendations, disclosure requirements, and penalties.
• New Zealand: Introduced a tiered licensing system and strict content disclaimers.
• Singapore & China: Have strict guidelines for social media-based financial influencers.

MCQs on Finfluencers and SEBI Regulations

1. What is a major concern related to financial influencers (Finfluencers)?

(a) They promote financial literacy without government support.
(b) They manipulate stock prices for personal gain.
(c) They provide investment advice without any affiliation to financial companies.
(d) They create content only for entertainment purposes.

Answer: (b) They manipulate stock prices for personal gain.

2. Which regulatory body in India has restricted associations between registered financial entities and unregistered Finfluencers?

(a) Reserve Bank of India (RBI)
(b) Securities and Exchange Board of India (SEBI)
(c) Advertising Standards Council of India (ASCI)
(d) National Stock Exchange (NSE)

Answer: (b) Securities and Exchange Board of India (SEBI)

UPSC Mains Questions on Finfluencers and SEBI Regulations

1. Discuss the impact of financial influencers (Finfluencers) on retail investors in India. How can SEBI’s new guidelines help regulate their activities?
2. Analyze the ethical and financial risks posed by Finfluencers. Suggest policy measures to balance investor protection with financial literacy.

3.3 Bridging Global Workforce Gaps: India’s Demographic Potential

Why in News?

The India Employment Outlook 2030, published by Observer Research Foundation (ORF), highlights that 24.3% of the incremental global workforce over the next decade will come from India, emphasizing the country’s pivotal role in global labor markets.

Global Labor Market Scenario

1. Shrinking Working-Age Population in High-Income Countries:
   • Declining birth rates in many developed nations have led to a projected workforce reduction of over 92 million by 2050.
2. Ageing Population:
   • The elderly population (65 and older) will increase by over 100 million in high-income countries, putting pressure on pension and healthcare systems.
3. Globalized Job Market:
   • Digital transformation and remote work adoption have enabled cross-border workforce integration, creating new job opportunities for skilled labor.
4. Shifting International Trade:
   • Geopolitical tensions, trade restrictions, and friendshoring policies are restructuring global job markets, impacting wages and demand for foreign labor.

India’s Demographic Advantage

1. Expanding Working Population:
   • India’s 1.4 billion population includes 65% working-age individuals (15-64 years) and 27% youth (15-24 years), creating a vast labor pool.
2. Bridging the Global Skill Gap:
   • The Global Skill Gap Study (NSDC) indicates increasing demand for Indian talent in regions like UAE, Saudi Arabia, Germany, Canada, USA, Australia, and the UK.
3. Dual Economic Advantage:
   • Young median age (28.4 years) offers workforce competitiveness and strong domestic consumption power.
4. Past Success in Workforce Export:
   • India’s IT and BPO sectors have demonstrated the global value of its skilled workforce.

Impact of Labor Mobility

1. Enhancing Global Productivity:
   • Migrant workers fill labor shortages and contribute to economic growth and efficiency.
2. Poverty Alleviation:
   • Workers migrating to high-income nations can increase their earnings by 6-15 times, lifting families out of poverty.
3. Boost to Social Welfare through Remittances:
   • India received $111 billion in remittances (2022), the first country to surpass the $100 billion mark, benefiting healthcare, education, and infrastructure.
4. Long-Term Implications for India’s Workforce:
   • Large-scale migration could lead to brain drain and skill shortages in critical sectors like healthcare and construction.

Initiatives to Leverage India’s Workforce Potential

1. Skill Development Programs:
   • Skill India Mission, Pradhan Mantri Kaushal Vikas Yojana, and vocational training under NEP 2020 aim to create a globally competitive workforce.
2. International Migration Agreements:
   • India has signed migration and skill training pacts with Italy, France, Germany, and the UK.

Challenges in Labor Mobility

1. COVID-19 Aftermath:
   • The pandemic disproportionately impacted low-skilled migrant workers, leading to job losses and financial instability.
2. Anti-Immigration Policies:
   • Restrictive visa norms and rising nationalism in high-income countries pose barriers for potential migrants.
3. Complex Immigration Processes:
   • Lengthy visa approvals, lack of integration programs, and high documentation costs hinder workforce mobility.
4. Automation Disruptions:
   • AI and robotics are replacing traditional jobs, reducing the demand for low-skilled migrant labor.

Way Forward

1. Aligning India’s Workforce with Global Demand:
   • Strengthening bilateral labor agreements to match India’s skilled labor supply with high-income country needs.
2. Investing in Skill Development:
   • Enhancing vocational training and educational reforms to meet global industry standards.
3. Simplifying Migration Policies:
   • Streamlining visa processing, information dissemination, and integration programs.
4. Awareness Campaigns on Migration Benefits:
   • Reducing negative public perception through educational initiatives on the positive impact of migrants.
5. Lowering Migration Costs & Strengthening Reintegration:
   • Reducing transaction costs for migrants and developing pathways for returnees to reintegrate into India’s economy.
6. Increasing Women’s Workforce Participation:
   • Only 24% of Indian women participated in the workforce in 2022 (ILO estimates); policies should focus on enhancing female labor mobility.

MCQs on Global Workforce Gaps

1. According to the India Employment Outlook 2030 report, what percentage of the incremental global workforce over the next decade will come from India?

(a) 18.5%
(b) 24.3%
(c) 32.7%
(d) 40.1%

Answer: (b) 24.3%

2. Which of the following is NOT a major challenge in global labor mobility?

(a) Automation reducing traditional job opportunities
(b) Anti-immigration sentiments in developed countries
(c) Growth in remittances sent by migrant workers
(d) Complex immigration policies and visa restrictions

Answer: (c) Growth in remittances sent by migrant workers

UPSC Mains Questions on Global Workforce Gaps

1. Discuss India’s role in bridging global workforce gaps. How can India strategically utilize its demographic advantage to boost economic growth?
2. What are the challenges associated with labor migration from India? Suggest policy measures to enhance India’s global workforce participation while minimizing brain drain.