The Securities and Exchange Board of India (SEBI) issued a directive last week mandating that regulated entities must terminate any ongoing associations with financial influencers, or “finfluencers,” within three months, as per reports. These entities include recognized stock exchanges, clearing corporations, and depositories.
The directive targets entities tied to unregistered advisors who provide recommendations on securities without SEBI’s express permission.
The circular states that SEBI-regulated persons must ensure that no associated person or agent gives any direct or indirect advice on securities.
SEBI explicitly forbids regulated entities from associating with any individual or group that makes performance claims related to securities without the board’s approval. This move follows SEBI’s earlier ban in June on unregistered financial influencers who offer advisory content and performance claims without permission.
Exemptions to SEBI’s rule include individuals focused solely on investor education, as long as they refrain from providing explicit investment recommendations or performance claims. Additionally, associations made through “specified digital platforms” with robust controls to prevent and mitigate unauthorized activities are allowed under SEBI’s guidelines.
SEBI’s latest clampdown stems from concerns over the potential risks of unregulated financial influencers. Often operating on a commission-based model, these influencers can impact financial decisions, sometimes promoting biased or misleading advice.
SEBI aims to introduce a regulatory framework that ensures finfluencers are accountable for the advice they give, safeguarding investors from poor financial guidance.
In a consultation paper released in August, SEBI outlined further restrictions for regulated entities, banning any form of financial promotion, reference, or technical engagement with finfluencers.