SEBI and Finfluencers: Regulator proposes to restrict regulated entities’ association with unregistered finfluencers
The Sebi-registered entities or intermediaries should have no relation with the unregistered finfluencers for any promotion or advertisement of their services, the paper proposed.
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The Securities and Exchange Board of India (Sebi) on August 25 released a consultation paper that seeks views from the public on the proposal to restrict the association of regulated entities with unregistered "finfluencers".
Financial influencers, commonly called ‘finfluencers’, are persons who provide advice on various financial topics such as investing in securities, personal finance, banking products, insurance and real estate investment, among others, through social or digital media platforms. They are considered to have the ability to influence the financial decisions of their followers.
Sebi, in its consultation paper, proposed that the registered entities or intermediaries should have no relation with the unregistered finfluencers for any promotion or advertisement of their services.
"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 said.
In recent years, finfluencers have drawn lot of flak for misguiding and exploiting gullible investors and traders. Some have resorted to practices that can be outright unethical or even illegal. Manu such influences have been contracted by brokers and mutual funds to bring more customers.
Furthermore, the paper suggested that the finfluencers who are registered with the Sebi, stock exchanges or the Association of Mutual Funds in India (AMFI) "shall display their appropriate registration number, contact details, investor grievance redressal helpline, and make appropriate disclosure and disclaimer on any posts".
Such entities should comply with the advertisement guidelines issued by the regulators, it said, further adding that the regulated entities should "not pay any trailing commission based on the number of referrals as referral fee".
Though Sebi said that limited referrals from retail clients, and payment of fees for such limited referrals by stockbrokers shall be allowed, suggesting that the market regulator has no problem on encouraging existing users to advertise their products in a limited way.
Sebi also suggested that 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," they said.
The public comments against the proposals have been invited till September 15, 2023, Sebi noted.
