SEBI Proposes to Restrict Association of Intermediaries with Unregistered Finfluencers

On August 25, 2023, the Securities and Exchange Board of India (SEBI) floated a consultation paper proposing to restrict the association of registered intermediaries or regulated entities with unregistered finfluencers, i.e., financial influencers. Such intermediaries would be required to take “active measures” to dissociate themselves from any unregistered entity using their name, product or service by reporting the same to the enforcement agencies, etc.

In the consultation paper, SEBI defines finfluencers as “persons who provide information and/or advice on various financial topics such as investing in securities, personal finance, banking products, insurance, real estate investment, etc. through social/digital media platforms/channels, and have the ability to influence the financial decisions of their followers”.

The paper highlights that the unregistered finfluencers may lack the requisite qualification or expertise in the subject. Further, they are not bound by any code of conduct and hence may not disclose their interest (including referral fee, compensation, non-cash benefits, etc.) in promoting products, services, or securities. In the interest of the investors and to curb the flow of such compensation, the Board deemed it necessary to limit the association of SEBI-registered intermediaries or regulated entities with unregistered finfluencers. To help investors identify unregistered entities, SEBI released another paper on the same day, proposing a separate mechanism for the collection of fees by Investment Advisers (IAs) and Research Analysts (RAs).

The proposal seeks to prohibit SEBI registered intermediaries or regulated entities from: –

• Having any association with unregistered entities, including finfluencers for promoting their products or services.
• Sharing their clients’ information with unregistered entities.
• Paying a trailing commission based on the number of referrals as a referral fee.

Also, the registered finfluencers would be required to: –

• Specify their registration number, contact details, investor grievance redressal helpline and appropriate disclosure and disclaimer on all posts.
• Conform to the code of conduct as per the terms of their registration.
• Adhere to the advertising guidelines prescribed by SEBI, stock exchanges and SEBI-recognised supervisory body from time to time.

The Board has sought public comments on the proposal by September 15, 2023.