SEBI Tightens Grip On Finfluencers, Implements New Rules

In three separate notifications, SEBI has imposed restrictions on how its regulated entities can interact with unregistered individuals. This move follows the board's approval of a proposal last month

The Securities and Exchange Board of India (SEBI) has updated its regulations to address concerns about unregistered financial influencers, often referred to as finfluencers. The new rules aim to mitigate potential risks posed by these unregistered individuals. 

In three separate notifications, SEBI has imposed restrictions on how its regulated entities can interact with unregistered individuals. This move follows the board's approval of a proposal last month. 

According to the new regulations, SEBI-regulated entities and their agents are prohibited from engaging in any financial transactions, client referrals, or interactions involving information technology systems with individuals who, either directly or indirectly, offer financial advice, recommendations, or make explicit claims about returns.

"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," SEBI said.

Market experts believe that by mandating finfluencers to register with SEBI and follow specific guidelines, the regulator is establishing a new standard for accountability and expertise in the financial sector. This move aims to prevent mutual fund houses, research analysts, registered investment advisors, and stock brokers from collaborating with unregistered finfluencers.

However, SEBI has allowed a limited exception for investor education partnerships, provided these finfluencers do not offer recommendations or make claims about returns or performance.

This regulatory change addresses growing concerns about the risks posed by unregulated finfluencers, who often operate on a commission-based model and may provide biased or misleading advice. Given the significant influence of these people on their followers' financial decisions in recent years, SEBI's updated framework seeks to hold them accountable for their guidance.

To implement these changes, SEBI has revised the regulations governing depository participants, intermediaries, and securities contracts.