The State Exchange Board of India (SEBI) has amended its regulations to address concerns regarding unregistered financial influencers, or “finfluencers,” amid growing worries about the potential risks posed by these unregulated individuals. In three separate notifications, the regulator has imposed restrictions on associations between its regulated entities and unregistered individuals. This follows the board’s approval of a proposal on this matter last month.
According to the notifications, individuals regulated by SEBI and their agents are prohibited from engaging in any transactions involving money, referring clients, or interacting with information technology systems with any person who, directly or indirectly, provides advice, recommendations, or makes explicit claims about returns.
No person regulated by SEBI, nor their agents, may have any direct or indirect association with anyone who provides advice or recommendations, directly or indirectly, related to a security or securities.
“Unless the person is registered with or otherwise permitted by the Board to provide such advice or recommendations, or makes any claim of returns or performance, explicitly or implicitly, related to a security or securities, unless the person has been permitted by the Board to make such a claim,” the regulator stated.
By requiring finfluencers to register with SEBI and follow specific guidelines, the regulator is establishing a standard for accountability and expertise in the sector, according to market experts. This move ensures that mutual fund houses, research analysts, registered investment advisors, and stockbrokers do not partner with finfluencers. However, a small exception has been made for investor education initiatives from such partnerships.
This exception is conditional upon finfluencers not providing any recommendations or making claims about returns or performance. The new regulations come amid increasing concerns about the risks associated with unregulated finfluencers who might offer biased or misleading advice, often operating on a commission-based model.
Finfluencers have had a significant impact on their followers’ financial decisions in recent years. SEBI’s regulatory framework aims to make them accountable and responsible for the advice they provide. To implement these changes, SEBI has amended the norms governing depository participants, intermediaries, and securities contracts.