Sebi Tightens Grip On Finfluencers With New Regulations

On June 27, the Securities and Exchange Board of India (SEBI) approved regulations to address the risks posed by unregistered financial influencers. The new norms ban registered entities from collaborating with unregistered investment advisors, known as 'finfluencers'. However, Sebi allows registered entities to associate with unregistered entities solely for sharing educational content, according to reports.

Sebi also mandated that registered entities must ensure their associates do not engage in prohibited activities.

"Persons regulated by the Board and the agents of such persons shall not have any association, like any transaction involving money or money's worth, referral of a client, interaction of information technology systems or any other association of similar nature or character, directly or indirectly, with any other person who, directly or indirectly, provides advice or recommendation or makes any implicit or explicit claim of return or performance, in respect of or related to security or securities unless permitted by the Board to provide such advice/recommendation", the market regulator said in a press statement.

Sebi is considering comprehensive measures to regulate 'finfluencers' amid rising concerns about investors being misled by unregulated advice. "The Securities and Exchange Board of India (SEBI) is contemplating guidelines to rein in finfluencers' activities," SEBI chairperson Madhabi Puri Buch stated on March 11, at an Association of Mutual Funds in India (AMFI) event in Mumbai. The proposed regulations aim to streamline the registration process for these influencers, ensuring greater transparency and accountability, while facilitating 'ease of registration,' according to media reports, citing Buch's comments at the event.

Sebi's proposed measures include establishing a Performance Validation Agency (PVA), a third-party entity responsible for verifying performance claims made by market participants such as Portfolio Management Services (PMS), Mutual Funds (MFs) and Investment Advisors. The PVA aims to enhance trust and reliability within the financial ecosystem by validating performance reports.
Last year, Sebi took stringent actions against unregistered finfluencers providing illegal investment advice through social media. Restrictions were imposed on intermediaries, including brokers and mutual funds, preventing them from engaging unregistered finfluencers for product promotion.
Additionally, the Advertising Standards Council of India (ASCI) revised its guidelines, mandating Sebi registration for influencers in the banking, financial services and insurance (BFSI) sector. According to these guidelines, influencers can offer investment-related advice only after registering with Sebi and must display their registration numbers along with their name and qualifications.

Influencers must display a disclaimer superimposing their qualifications, registration, or certification details on visuals in a readable or upfront manner. For other financial advice services, influencers need credentials or a license from the Insurance Regulatory and Development Authority of India, or they must be qualified chartered accountants or company secretaries. Sebi also released two consultation papers addressing payment structures for financial advice and education, as well as partnerships between regulated entities and finfluencers.