[Srashti Talreja is a fourth-year BBA LLB (Hons.) student at Symbiosis Law School, Pune, and Kartik Mehta a fourth-year BA LLB (Hons.) student at Hidayatullah National Law University, Raipur]
The recent crackdown by Securities and Exchange Board of India (SEBI) on ‘Asmita Patel’ —also known as the ‘she-wolf of the Stock Market’ — following the issuance of the new circular, (Circular) has sent shockwaves through unregistered finfluencers. Following numerous complaints filed against her, SEBI banned the YouTuber, forfeiting INR 53.6 crore, and also banned four other associated entities for offering unregistered investment advisory services in the garb of educational services. SEBI’s order stated that the influencers were allegedly providing misleading financial investment advice at ‘Asmita Patel Global School of Trading’, making false claims such as managing a huge portfolio of INR 140 crores.
As per a recent SEBI’s consultation paper (Consultation Paper), financial influencers, or ‘finfluencers’, are “persons who provide information and/or advice on various financial topics such as investing in securities, personal finance, banking products, insurance, real estate investment, etc. through social/digital media platforms/channels, and have the ability to influence the financial decisions of their followers.” Tightening its grip on such finfluencers, the Circular stipulates that the stock market educators can only use stock market data with a three-month lag, resulting in restrictions on displaying or discussing live stock market data. This new directive acts as a nail in the coffin for unregistered finfluencers providing live stock market advice under the pretext of imparting education However, genuine market educators remain unimpacted, as they can still impart knowledge effectively using past stock market data. This post aims to discuss the current regulatory framework on financial influencers and reflect on the legal conundrum by contrasting it with the regulatory landscape in the US and UK.
The Legal Framework
The Advertising Standards Council of India (ASCI), a self-regulatory body, amended its Guidelines for Influencer Advertising in Digital Media in early August 2023 in an attempt to regulate finfluencers. The updated guidelines stipulate mandatory qualification and disclosure of influencers in the field of banking, financial services and insurance. Additionally, these guidelines instruct finfluencers to register themselves and comply with the disclosure conditions as necessitated by SEBI.
The mandatory registration with SEBI limits finfluencers to either the category of Research Analysts (RA) or Investment Advisors (IA). Under the SEBI (Investment Advisers) Regulations, 2013 (IA Regulations), the scope of IA does not include advice distributed via electronic or broadcast channels that are extensively attainable to general public, thereby excluding finfluencers. Similarly, under SEBI (Research Analysts) Regulations, 2014 (RA Regulations), any advice regarding general market trends, economic and political conditions and technical analysis are excluded from its scope. Therefore, without commenting on any specific shares to buy/ sell or on future performance of a share, a finfluencer can shape a market sentiment around a certain industry and earn profit from such manipulation while remaining outside the scope of RA Guidelines.
That said, section 12-A of SEBI Act, 1992 prohibits “an individual from directly or indirectly engaging in any act, practice, course of business, which is fraudulent, misleading, or manipulative with respect to transactions on the stock exchange”. This prohibition is reiterated under regulation 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (“PFUTP Regulations”), which specifically states that any “knowingly false or misleading statement” made to influence the investment decisions of investors constitutes a “manipulative, fraudulent, or unfair trade practice”. However, this knowledge qualifier–which was specifically added by an amendment in 2019–can act as a barrier against the SEBI if the finfluencer unknowingly mislead the investors.
In Mani Oomen, the Securities Appellate Tribunal (SAT) reaffirmed that recklessness or gross negligence does not constitute actual knowledge or intent. This principle is particularly relevant to finfluencers, who may lawfully promote a particular industry and profit from the subsequent price surge without making false or misleading statements. Instead of disseminating outright misinformation, they may strategically highlight favourable trends or selectively present information, thereby shaping market sentiment while remaining outside regulatory scrutiny. Thus, while SEBI seeks to regulate market manipulation, the presence of knowledge and intent as determinant in establishing liability under the PFUTP Regulations remains a crucial hindrance.
Specified Digital Platform (SDP) Framework
The Consultation Paper aims to regulate unregistered financial influencers in order to prevent substantial losses to consumers caused by unqualified advice. It seeks to define finfluencers and their referral business model, while attempting to disrupt their revenue model. In line with this, SEBI released another circular in October last year, informing all regulated and registered entities under SEBI to sever ties with unregistered financial advisors within three months. However, the provisions of this circular were not applicable to an associations formed through an SDP.
Subsequently, SEBI released a consultation paper on “Draft circular on recognition as Specified Digital Platform” (Draft Circular) with the aim of establishing measures to be implemented by platforms to be recognised as SDPs. Firstly, the platforms need to establish a well-structured policy, validated by SEBI, to share the information and data related to the securities market whenever demanded. Platforms must employ advanced tools, including AI and machine learning, capable of reviewing and identifying posted content and advertisements falling under the jurisdiction of the financial regulator. These tools should categorize the content as either recommendatory, advisory or educational. A verified label should implemented to evaluate SEBI regulated persons and distinguish between unregistered entities and registered ones. The curative measures also include a mechanism for escalation of unlawful content in two ways: firstly, by SEBI officials, its registered entities and market infrastructure institutions; and secondly by platform users.
However, the Draft Circular falls short in several aspects. It fails to define the term ‘SDP,’ does not delineate their scope, and neglects to establish any qualification thresholds, thereby subjecting all entities—regardless of their size or age—to the same stringent requirements. Hence, the Draft Circular does not account for smaller platforms with limited resources, failing to consider the financial feasibility of implementing AI-driven tools. Furthermore, it overlooks the fundamental distinction between the potential harm caused by an SDP with a large following versus one with a relatively smaller audience. The mandatory reliance on AI tools further complicates compliance, as AI technology is still evolving and prone to errors, necessitating human intervention. Thus, while SEBI’s initiative aims to strengthen investor protection, the lack of clarity and disproportionate compliance burden on smaller entities raise significant concerns about the feasibility and effectiveness of the proposed framework.
Regulatory Overlap
With the Draft Circular, SEBI aims to fill a regulatory gap by regulating online content specifically related to the financial market. However, it is important to also consider the existing regulatory framework that addresses misleading content and impersonation prevalent on online platforms. To name a few, the Ministry for Information and Broadcasting regularly issues advisories for social media intermediaries to prevent misleading content on social media and online platforms. The Ministry of Electronics and Information Technology (MeitY) penalises impersonation using a computer resource under the Information Technology Act, 2000. The Intermediary Guidelines, 2021 also regulate online content posted on intermediaries’ online platforms. Furthermore, the Central Consumer Protection Authority, empowered by Consumer Protection Act, 2019, issued the Guidelines for Prevention of Misleading Advertisements and Endorsements for Misleading Advertisements, 2022 to protect consumers from deceptive endorsements, including financial market advice.
Given these existing guidelines, the implementation of the Draft Circular could create confusion for the digital platforms regarding compliance. This ambiguity underscores the need for SEBI to collaborate with other regulating bodies to establish a harmonised framework.
Cross Jurisdiction Analysis
The regulation of finfluencers varies significantly across jurisdictions, with the UK and US adopting compliance-driven frameworks, whereas India opting for outright restrictions. In the UK, the Financial Conduct Authority’s (FCA)Finalised Guidance on Financial Promotions on Social Media (Guidance) assists advertising firms in ensuring compliance with the Financial Services and Markets Act, 2000. Financial promotions are prohibited unless conducted by authorised individuals or those whose promotions have been approved by authorised entities. The Guidance outlines the applicable regulations, their scope, and the necessary compliance measures, including the classification of activities undertaken by finfluencers. Unlike the FCA’s framework, SEBI’s approach of outrightly restricting advertising firms from engaging unregistered finfluencers–rather than imposing a compliance obligation on firms–risks impeding financial literacy in the country.
In the US, social media influencers fall under the regulatory purview of the Federal Trade Commission (FTC) through its Guides Concerning the Use of Endorsements and Testimonials in Advertising and Disclosures 101 for Social Media Influencers. These require influencers to transparently disclose any material relationships—be it financial, familial, or employment-related—with the companies whose products they promote. For registered IA, the Securities and Exchange Commission (SEC) revised its Investment Advisor Marketing Rules in 2022, mandating compliance with disclosure requirements regarding compensation and formalized agreements for promotional activities. While the UK and US impose compliance obligations on firms and influencers, India’s restrictive approach of prohibiting financial entities from associating with unregistered finfluencers may hinder the dissemination of financial knowledge to retail investors.
Conclusion
The rise of finfluencers reflects a broader shift in how financial knowledge is disseminated, particularly to retail investors who may lack access to traditional advisory services. While SEBI’s regulatory framework seeks to curb misleading financial advice and protect investors, its approach of outright restrictions, rather than structured compliance, risks stifling financial literacy and innovation. A more balanced approach—one that emphasizes robust disclosures, industry accreditation, and consumer awareness—could prove more effective. At its core, financial advice extends beyond numbers and thrives on trust. The challenge is to strike a balance between protecting investors from predatory actors and fostering a digital ecosystem where responsible, well-informed financial discourse can flourish. While SEBI’s intent is commendable, the future of financial literacy should not hindered by restrictive policies; instead, it should be nurtured with accountability, transparency, and a nuanced regulatory approach.
– Srashti Talreja & Kartik Mehta
