India's markets regulator has devised a seven-point plan to regulate the growing tribe of financial influencers, said Kamlesh Varshney, full-time member of the Securities and Exchange Board of India (Sebi), at the FICCI's 21st Annual Capital Markets Conference (CAPAM) on Friday.
Varshney added that the plan has seven elements, including a mixture of enforcement, education and structural changes.
The first point would be a payment gateway through which investors can pay registered investment advisors (RIAs) and research analysts (RAs). This would eventually spread the belief in the market that paying intermediaries outside the gateway would mean dealing with an unregistered person.
The second point is the non-association between Sebi-registered entities and finfluencers. In other words, regulated entities cannot engage with or associate with influencers in any way, such as affiliate links. This was announced at the recently held Sebi board meeting.
In its third point, however, Sebi has created one exception to the non-association. The regulator plans to ‘whitelist’ some social-media platforms that proactively detect and remove non-compliant content through algorithms. For instance a social-media platform like Google, if whitelisted, may remove non-compliant content.
The fourth arrow in Sebi’s quiver is its performance validation agency, or PVA. This entity will track and validate returns claims by registered intermediaries, putting an end to false or bombastic claims. A working group constituted by the regulator is working on the outlines for a PVA.
The fifth leg of Sebi’s strategy is risk-based enforcement. Essentially, Sebi will take enforcement action against large or systemically dangerous finfluencers. According to Varshney, the approach essentially replaces the target of catching all traffic rule breakers and issuing them with challans by creating a structurally compliant system.
The sixth leg of Sebi’s strategy is summary proceedings. A recent consultation paper by Sebi on this provides for the cancellation of licences of regulated entities through summary proceedings in ‘open-and-shut’ cases of violations.
The seventh and final leg of Sebi’s strategy is the evolution of rules and regulations to plug loopholes. For instance, frequently asked questions or FAQs may define the limits of ‘ancillary advice’ by mutual fund distributors.
