Sebi tweaks regulations for finfluencers, removes content of over 15,000 unregulated entities
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Sebi tweaks regulations for finfluencers, removes content of over 15,000 unregulated entities
The Securities Exchange Board of India (SEBI) has amended its norms to regulate unregistered financial influencers or finfluencers on social media platforms due to concerns about potential risks associated with such individuals. In three separate notifications, the regulator has imposed restrictions on the interactions between its regulated entities and unregistered persons. This decision was made following the approval of a proposal by SEBI's board last month.
Sebi whole-time member Kamlesh Varshney said that the regulator has removed more than 15,000 ‘content sites’ by unregulated financial influencers as part of its efforts to protect investors in the past three months.
These finfluencer content were pulled down by technological platforms on Sebi’s request, he said. This was in line with Sebi’s decision in July to restrain regulated entities from associating with finfluencers.
As per the latest tweaks, the persons regulated by SEBI and the agents of such persons will not have any association like any transaction involving money, referral of a client, interaction of information technology systems with any other person who, directly or indirectly, provides advice, recommendation or makes explicit claim of return.
In the notification, Sebi said: "No person regulated by the Board (SEBI) or the agent of such a person shall have any direct or indirect association, with another person who provides advice or any recommendation, directly or indirectly, in respect of or related to a security or securities, unless the person is registered with or otherwise permitted by the Board to provide such advice or recommendation; or makes any claim, of returns or performance expressly or impliedly, in respect of or related to a security or securities, unless the person has been permitted by the Board to make such a claim.”
To register with SEBI and adhere to specific guidelines, the regulator is setting a standard for accountability and expertise in the sector, market experts said.
The move would ensure that mutual fund houses, research analysts, registered investment advisors and stock brokers do not partner with finfluencers.
On the other hand, a small window has been provided for investor education from such partnership. This is subject to a condition that these finfluencers do not provide any recommendation or claim any return or performance.
The new norms have been introduced to protect retail investors who get easily influenced by such entities offering biased or misleading information to earn a commission.
This came amid growing concern over the potential risks associated with unregulated finfluencers who might offer biased or misleading advice. They usually work on a commission-based model.
Background
In June, SEBI established initial regulations for unregistered financial influencers, also known as 'finfluencers,' by barring regulated entities from engaging with them. This measure aimed to safeguard investors from potentially deceptive financial guidance and to guarantee that all financial influencers function under a regulated structure.
SEBI stated: "Entities regulated by SEBI and their agents are prohibited from associating, directly or indirectly, with any individual or entity that offers financial advice or makes performance claims without SEBI’s permission. This includes any form of monetary transactions, client referrals, or IT system interactions."
The responsibility lies with the registered entities to ensure their associates do not engage in such prohibited activities.
Finfluencers, who provide advice on topics like investing, personal finance, and real estate through digital platforms, have gained significant influence over their followers’ financial decisions.
However, their rise has also led to numerous instances of misleading investors. Some finfluencers have even partnered with brokers and mutual funds to attract more customers, often engaging in unethical or illegal practices.
Sebi had issued a consultation paper in August last year to gather public feedback on the matter. The consultation paper put forth the suggestion that registered financial influencers (finfluencers) are required to showcase their registration number, contact information, investor grievance helpline, and suitable disclaimers on their content.
As per the latest tweaks, the persons regulated by SEBI and the agents of such persons will not have any association like any transaction involving money, referral of a client, interaction of information technology systems with any other person who, directly or indirectly, provides advice, recommendation or makes explicit claim of return.
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