SEBI proposes to restrict association of regulated entities with unregistered 'finfluencers'

The Securities and Exchange Board of India (SEBI) has proposed to restrict the association of regulated entities with unregistered entities including "finfluencers" in order to disrupt their revenue model.

SEBI has released a consultation paper on 'Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers)'.

“The objective of this paper is to seek public comments on a proposal to restrict the association of  SEBI  registered intermediaries/regulated entities with unregistered ‘finfluencers’,” SEBI said.

In recent times, the activities of financial influencers (‘finfluencers’) have attracted wide public and media attention. These finfluencers are usually unregistered entities providing catchy content, information, and advice on various financial topics to their several followers, SEBI added.

While some of them may be genuine educators,  many of them are effectively unregistered and unauthorised  Investment  Advisers (IAs)  or  Research  Analysts (RAs).  A  separate consultation paper proposes a unique fee payment platform for registered  IAs and RAs that should help investors identify,  isolate and avoid unregistered entities/finfluencers.

According to SEBI, other unregistered entities/finfluencers may be effectively enticing their followers to purchase products, services, or securities in return for undisclosed compensation from platforms or producers. This paper seeks to restrict the association of SEBI-registered intermediaries/regulated entities with such unregistered finfluencers, to curb the flow of such compensation.

“SEBI has come across instances where SEBI registered intermediaries/regulated entities may be relying on such unregistered/unregulated finfluencers to promote their products and services,” SEBI said.

“Besides undertaking enforcement action against unregistered finfluencers who breach SEBI regulations, this paper proposes to disrupt the revenue model for such finfluencers, so that the perverse incentives in the ecosystem are reduced. No SEBI  registered intermediaries/regulated entities or their agents/representatives shall, directly or indirectly, have any association/relationship in any form, whether monetary or non-monetary,   for any promotion or advertisement of their services/products, with any unregistered entities (including finfluencers),” it added.

Entities registered/regulated by SEBI or stock exchanges or AMFI shall not share any confidential information of their clients with any unregistered entities.

Finfluencers registered with SEBI or stock exchanges or AMFI in any capacity shall display their appropriate registration number,  contact details, and investor grievance redressal helpline,  and make appropriate disclosures and disclaimers on any posts. They shall also fully adhere to the code of conduct under the terms of their relevant registration.

According to SEBI, such entities shall comply with the advertisement guidelines issued by SEBI, stock exchanges and SEBI-recognised supervisory bodies from time to time. SEBI-registered intermediaries/regulated entities shall not pay any trailing commission based on the number of referrals as a referral fee.

Limited referrals from retail clients and payment of fees for such limited referrals by stockbrokers shall be allowed.

SEBI-registered intermediaries shall take active measures to dissociate themselves from any unregistered entity using their name, product or service. They shall take necessary action to bring it to the notice of the enforcement agency concerned to take appropriate action, including filing a case under section 420 of the Indian Penal Code, 1860 for impersonation and fraud, etc. as may be applicable.

SEBI said that comments/suggestions may be forwarded by email to consultationMIRSD@sebi.gov.in by  September  15, 2023.