The Securities and Exchange Board of India (SEBI) has introduced strict new regulations prohibiting brokers, mutual funds, stock exchanges, and other regulated entities from associating with unregistered investment advisors, financial influencers, or unauthorized market participants. The move, effective since August 29, 2024, aims to curb misleading financial advice and protect investors from unauthorized stock tips and return guarantees.
Key highlights of SEBI’s circular:
- Banned associations with unregistered advisors:
SEBI-regulated entities, including stockbrokers, depositories, portfolio managers, mutual fund distributors, and alternative investment fund (AIF) distributors, cannot collaborate, partner, or have any financial association with individuals or entities offering investment recommendations or advice without SEBI registration. - Scope of association:
The restriction applies to financial arrangements, referral partnerships, revenue-sharing models, IT system integrations, and promotional tie-ups that enable unregistered entities to influence investors. - Prohibited activities:
- Any marketing, advertising, or partnership with unregistered advisors that predict security prices, promise fixed returns, or give investment recommendations.
- No association with financial influencers who promote trading strategies, stock tips, or other investment schemes without SEBI authorization.
- Investor education allowed, but with conditions:
SEBI permits investor education initiatives but bars entities from making specific stock recommendations, return guarantees, or misleading claims under the guise of financial literacy. - Immediate compliance required:
- All SEBI-regulated entities were instructed to terminate existing contracts with non-compliant associates by January 2025.
- Failure to comply could result in penalties, suspension, or debarment by SEBI.
Impact on brokers, financial influencers, and investors:
- Stockbrokers and mutual funds must cut ties with unregistered financial influencers (Finfluencers) who promote trading strategies and specific stocks.
- Retail investors may see fewer unsolicited stock tips and misleading return claims as SEBI tightens enforcement.
- Social media influencers offering stock market advice without SEBI registration will face stricter scrutiny and limitations.
- Brokerages and investment platforms must revise their marketing strategies to ensure compliance with SEBI’s guidelines.
SEBI’s move is a major crackdown on misleading financial content and aims to promote transparency in the securities market, ensuring that only SEBI-registered professionals provide investment advice.
