The Securities and Exchange Board of India (SEBI) on Friday proposed to restrict the association of regulated entities with unregistered “finfluencers” to disrupt their revenue model. The SEBI consultation paper on ‘finfluencers’ put out of public view also noted that activities of financial influencers have attracted wide public and media attention.
“While some of them may be genuine educators, many of them are effectively unregistered and unauthorised Investment Advisers (IAs) or Research Analysts (RAs)…finfluencers may be effectively enticing their followers to purchase products, services, or securities in return for undisclosed compensation from platforms or producers,” the market regulator said.
It defined Financial influencers ‘finfluencers’ as 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.
The 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.
Over the past few years, financial influencers (finfluencers) have faced significant criticism for leading astray and taking advantage of vulnerable investors and traders. Certain individuals have engaged in practices that are plainly unethical or potentially illegal. Many of these influencers have been enlisted by brokers and mutual funds with the aim of attracting a larger customer base.
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Furthermore, the paper proposed 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”.
According to the SEBI proposal, these entities are expected to adhere to the advertising guidelines put forth by regulatory bodies. Additionally, regulated entities are advised against providing a trailing commission based on referral numbers, effectively discouraging this practice. While SEBI indicated that a controlled number of referrals from retail clients, accompanied by fee payments for such referrals by stockbrokers, would be permissible, this suggests that the market regulatory authority is open to allowing current users to promote their offerings within certain limits.
SEBI also recommended that registered intermediaries take proactive steps to disassociate themselves from any unregistered entity that exploits 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,” the paper said said.