The Securities and Exchange Board of India (Sebi) has approved a proposal to ban the association of regulated entities with unregistered financial influencers, commonly known as ‘finfluencers’. This decision was made on June 27.
According to a press statement from Sebi, regulated persons and their agents cannot have any association with individuals who provide financial advice or make performance claims related to securities, unless those individuals are permitted by Sebi. This includes any transactions involving money, referrals, IT interactions, or similar associations.
The responsibility lies with the registered entity to ensure that their associates do not engage in prohibited activities.
Finfluencers are individuals who provide advice on topics like investing in securities, personal finance, banking products, insurance, and real estate through social or digital media. They have significant influence over the financial decisions of their followers.
In recent years, finfluencers have faced criticism for misleading and exploiting investors. Some have engaged in unethical or illegal practices. Many have been contracted by brokers and mutual funds to attract more customers.
Sebi had previously released a consultation paper on this issue in August, seeking public comments. The paper suggested that registered finfluencers should display their registration number, contact details, and investor grievance helpline on their posts, and comply with advertisement guidelines. It also stated that regulated entities should not pay commissions based on referral numbers.
However, Sebi mentioned that limited referrals from retail clients and payment of fees for such referrals by stockbrokers will be allowed, indicating some support for user-based promotion within limits.
