Sebi's dilemma: There exists a fine line between finfluencing and free speech

What is common to all of the above is that someone is trying to influence everyone who hears or reads what’s being said. There has been no objection so far to any of these actions. But, of late, the Securities and Exchange Board of India (Sebi) has stepped in to protect small investors by proposing to bring a class of “unregistered financial influencers," now termed ‘finfluencers,’ under regulation. This move is welcome, as individual investors who are not market-savvy often depend on advice from ‘experts’ who speak on TV or express views in newspapers or on social media.

The crux of the issue is that they may all have vested interests in making money by enticing followers to take a particular action. In these uncertain times, when inflation is high and one is unsure if the economy is really booming, it is not easy to get better returns on savings. Bank deposits are a safe but unattractive option. Stocks make sense, and this is why finfluencers matter.

Interesting issues come up. The first is that all the characters described in this drama are eyeing the individual’s wallet, as all of them earn money by selling what they do. Hence, Sebi’s concern of unscrupulous people guiding the less knowledgeable holds true for all these. If regulation is necessary, then logically the regulated should not deal with the unregulated.

Second, curiously, while digitization has been given an official push and the Reserve Bank of India has a campaign asking people to be careful, one can still fall into the trap of being duped through online links and calls. Yet, the individual has to knock on legal doors for redress. There is no way one can control this. In pre-digitization days, there were no phone financial services or emails with links that promised to ease one’s life, and chances of fraud were negligible. Here, while one is told that caution has to be exercised, at the end of the day, the onus is on the individual to stay alert and away from scamsters. It is never easy to tell a fake online link apart from a genuine one sent by an insurance company or a bank.

Third, when it comes to social media, one knows that it is very hard to control what is circulated or consumed. Practically speaking, what goes around social media platforms cannot be tracked even by the authorities. It is almost impossible to check the credentials of finfluencers who are neither seen on TV nor featured with biographical details in newspapers. The entire story of Bitcoin and its mystery originator is well documented. The name Satoshi Nakamoto is associated with this cryptocurrency, though no one is sure who this person is.

Finfluencers may also be using pseudonyms and could be hard to identify. While the Sebi paper on the phenomenon asks registered entities not to have any dealings with such finfluencers, tracking them is a challenge. But then, remember that Sebi’s battle on participatory notes is still not over, although for decades it has sought to stop Indians channelling unaccounted money back into India through foreign investment units registered overseas in places like Mauritius.

Fourth, while protecting investor interest is necessary, there is a lot of information formally presented by mutual funds and insurance companies that can be misleadingly influential. To what extent can our regulators really go to protect the non-savvy individual? There is often fine print that many people cannot understand (or ignore) but still meets regulatory requirements without serving the purpose of investor protection.

Sebi certainly needs to be complimented for bringing up the subject, and given the resolve it has shown in several areas over the last couple of years, one can see more regulation and discipline here. At the broader level, other regulators too should examine closely how to control unscrupulous entities from exploiting the individual. The government too could get involved in the project to moderate how sundry other influencers affect household consumption patterns.

A conundrum that arises is this: Where does free speech stand in this debate? Even if motivated by money, offering a public opinion cannot be a crime. Audiences have to use their own judgement and cannot expect to be hand-held all the time. Also, where does financial inclusion stand, considering that a major effort is underway not just to give more people deposit and credit facilities, but also access to other saving instruments? Implicit in this is that someone will be guiding vulnerable classes on money matters in ways that may not necessarily be to their advantage; many such advisors may have directly related annual targets to meet. So where can one draw a fine line?

These are the author’s personal views.