SEBI wants regulated entities to stay away from unregistered finfluencers

The Securities and Exchange Board of India (SEBI) has taken the first formal step to address the growing concern of unregistered entities – especially financial influencers or finfluencers – doling out stock tips and recommendations to investors. 

In a consultation paper issued on Friday, the capital markets watchdog has proposed a slew of measures aimed at curbing the association of regulated entities -- like brokerage firms, and mutual funds, etc -- with unregulated entities, including finfluencers. 

“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),” stated the SEBI consultation paper. 

“Entities registered/regulated by SEBI or stock exchanges or AMFI shall not share any confidential information of their clients with any unregistered entities,” it added. The Association of Mutual Funds in India or AMFI is the industry body for mutual funds. 

Simply put, the regulator has proposed that brokerage firms or mutual funds can engage with only SEBI-registered investment advisors or research analysts. 

Going one step further, the regulator has proposed that if any unregistered entity is found using the name of any SEBI-registered entity, then the latter should lodge a formal complaint. 

“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 enforcement agency concerned to take appropriate action, including filing case under section 420 of the Indian Penal Code, 1860 for impersonation and fraud, etc. as may be applicable,” stated the consultation paper. 

Further, the regulator has proposed that finfluencers that register with SEBI, stock exchanges or AMFI will have to properly display their registration number along with other requisite details while including “appropriate disclosure and disclaimer” on their posts and also adhering to the advertisement guidelines issued by SEBI, stock exchanges and any SEBI recognised supervisory body. 

Meanwhile, another proposal bars SEBI-registered intermediaries or regulated entities from paying any trailing commission based on the number of referrals as referral fee though limited referrals from retail clients, and payment of fees for such limited referrals by stockbrokers will be allowed. 

The SEBI consultation paper has highlighted the fact that “finfluencers are usually unregistered entities providing catchy content, information, and advice on various financial topics to their several followers”.