Markets regulator Securities and Exchange Board of India on Wednesday asked regulated entities – including recognised stock exchanges, clearing corporations, and depositors to terminate their existing contracts with any unregulated financial advisers within three months.
According to the circular, a person regulated by the Board is required to ensure that any person associated with it or its agent does not provide advice or any recommendation, directly or indirectly, related to the securities without the regulator’s permission. The regulated entities should not have any direct or indirect association with a person who 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.
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The latest circular follows SEBI’s decision of June 27 to ban association with unregistered content creators who offer advice or recommendations or make claims on the performance of any security.
However, the regulator has exempted those engaged in investor education and does not advise, recommend, or make claims on share performance. SEBI also excluded associations made through a “specified digital platform”, which has a mechanism in place to take preventive as well as curative action to ensure that it is not used for any activity specifically prohibited by SEBI.
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Why does SEBI want to regulate finfluencers?
SEBI’s measures 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.
Financial influencers have significantly impacted their followers’ financial decisions in the last few years and thus SEBI’s regulatory framework can make them accountable and responsible for the advice they provide. To address these concerns, SEBI has amended norms governing depository participants.
SEBI defined finfluencers as individuals who share financial information on platforms like Instagram, Facebook, YouTube, LinkedIn and X. The regulator highlighted the challenge of promoting financial awareness while preventing misleading advice.
The regulator has come across several cases of “finfluencers inducing investors to deal in securities based on inappropriate claims.” SEBI noted several cases wherein financial influencers gave bad financial advice due to their lack of expertise or for personal gain. The regulator has banned finfluencers Baap of Chart and PR Sundar, imposing a fine of Rs 17.2 crore and Rs 6 crore respectively for providing investment advice without permission.
In the last few months, SEBI has taken several measures against unregistered individuals providing security advice. In its consultation paper of August 2024, SEBI amended its finfluencer guidelines to add that apart from any monetary association with the financial influencers. Regulated entities must not refer clients to them, or allow their tech systems to engage with those of the finfluencer.
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Earlier this year, SEBI imposed a penalty of over Rs 12 crore in April against financial influencer Ravindra Bharti for exploiting investor trust.
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