The new breed of un-registered ‘finfluencers’ indulging in malpractices such as paid promotion, front-running, duping investors through fancy products have been on the rise. Through social media channels they not only rob gullible investors but also put the trading system at risk.
Amid growing concern over the potential risks associated with unregulated finfluencers, the Securities and Exchange Board of India (SEBI) recently came out with a consultation paper to recognize ‘Specified Digital Platform’ (SDP). In a recent conversation, SEBI Chairperson Madhabi Puri Buch said the regulator has identified digital platforms through which registered financial market entities can associate with unregistered investment advisors.
A digital platform that enables users to interact online and create, share and access information using its services can apply for SEBI recognition. However, SDPs must demonstrate to SEBI that they have a mechanism in place to take preventive as well as curative action.
The recognition of these platforms will ensure they do not enable illegal activities related to securities, such as unregistered entities offering advice or making unauthorized claims about the performance of securities.
Currently, persons/entities regulated by SEBI, such as stock exchanges, clearing corporations, registered depositories and their agents, should not have any direct or indirect association with anyone who provides advice or any recommendation making tall claims on return/performance.
However, these provisions will not apply to them if they associate with an “SDP”.
SEBI said, preventive measures are the proactive and pre-emptive actions that the platform takes to prevent fraud; impersonation; any claims by entities that are not permitted by SEBI. As part of preventive measures, the specified digital media platforms should have a laid-down policy to share the information and data with SEBI when asked for, the regulator said.
Tools of vigilance
The platform should have in place the necessary technical tools, systems and expertise to identify and analyze the content and/or advertisement related to a security or securities, it further said. The platform should deploy advanced artificial intelligence (AI) and machine learning (ML) tools for such purpose, the regulator added.
These platforms should also have the mechanism to auto-check if an intermediary/entity is registered/recognised by accessing the whitelist published by SEBI and mechanisms to check if agents are on the whitelist published by the Association of Mutual Funds in India (AMFI) and stock exchanges.
The platform should also have a mechanism to report/flag the misleading content and/or advertisement or unauthorized entity by platform users so as to generate intelligence for further examination of such content/advertisement or entity. It should also have a system to provide verified label or badge to SEBI-registered persons/entities to enable users to allow it to flag for further scrutiny to bring down content/advertisement by unregistered entities.
Some aspects unclear
However, the concept needs more clarity on some aspects: First, who are all eligible to apply for SDPs; how will the process function; will SEBI take responsibility in case of any data theft; and will SDPs’ actions stand legal scrutiny, etc. Besides, adopting AI and ML tools is challenging in the sense that they need constant upgradation to filter the “stock intruders” which means financial burden, especially for smaller platforms.
Also, how these platforms can check the bigger menace of someone operating from remote places giving “fake tips” through social media postings and duping investors. Of late, finfluencers, through anonymous calls from various cities, such as Indore, Bengaluru, Hyderabad, New Delhi, etc or through various media/social media platforms reach out to people across the country to attract them to stock trading by promising them fancied returns. . Most of them do not trade through exchanges.
SEBI’s intentions are right. However, it is investors who should be more vigilant in identifying the right product that suits their financial needs. This can easily be done even with little financial literacy.