SEBI Faces Dilemma in Promoting Financial Awareness Amid Rise of 'Finfluencers'
India's market regulator, the Securities and Exchange Board of India (SEBI), is grappling with a challenging situation as it intensifies efforts to enhance financial awareness across the nation.
"There is a dilemma on how to spread financial awareness across the system and at the same time ensuring that 'finfluencers' don’t spread misleading advice for earning extra income," shared G Ananth Narayan, a whole-time member of SEBI, at Mint's 9th Annual Mutual Fund Conclave on Thursday.
Finfluencers are entities that can wield financial influence through various social media platforms.
Narayan stressed the need to allow educators to perform their role effectively while ensuring the quality of financial education remains high. He encouraged the ₹44-trillion Mutual Fund industry to explore innovative product types to sustain growth in assets under management.
"This is an area that requires extensive discussion on ensuring quality financial education while preventing wrongdoers from spreading pervasive incentives that erode trust in the system," Narayan emphasized.
This comes as the industry anticipates SEBI to release a consultation paper on how the regulator plans to curb mis-selling by these so-called finfluencers. SEBI's Chairperson, Madhabi Puri Buch, recently mentioned that the regulator is actively working on such a consultation paper.
Narayan also highlighted the importance of safeguarding regulated practitioners, such as distributors, registered investment advisors, and registered analysts, from unregistered entities. He underscored the need to prevent manipulation within the system.
SEBI recently introduced an advertisement code mandating registered investment advisors and registered investment analysts to obtain prior approval and pay a fee before publishing new advertisements. Many stakeholders raised concerns about the potential increase in business costs due to these regulations.
"Safeguarding finfluencers through strong regulation is vital as they shape public opinions. A protocol should be established, such as passing an exam, to ensure the quality of information reaching the public," stated Sandeep Tandon, CEO of Quant Mutual Fund.
Narayan emphasized the importance of the involvement of all players in the financial system for the mutual fund industry's growth. He also highlighted SEBI's focus on cyber and tech capabilities to manage risks.
Narayan emphasized SEBI's active monitoring and action against wrongdoers, ranging from frontrunning to insider trading, manipulation, inducement, and fund diversion. He underscored the need to uphold trust in the financial system.
While maintaining trust among stakeholders, he also stressed the necessity of introducing new products to ensure industry growth.
"We must balance trust preservation with concurrent growth."
Over the last decade, SEBI has taken multiple measures to curb mis-selling and enhance transparency in the mutual fund industry. Recently, the regulator revised the total expense ratio (TER) norms applicable to Asset Management Companies (AMCs).
In a bid to improve cost transparency for unit holders, SEBI proposed a uniform TER across mutual fund schemes. The regulator aims to include all permitted expenses within the TER, preventing any additional charges beyond the prescribed limits.
In its recent board meeting, the regulator postponed the implementation of rationalized TER. Buch mentioned SEBI's plan to issue a second consultation paper on rationalizing TER soon.