SEBI to Onslaught Fin influencers

The Securities and Exchange Board of India (SEBI) has taken a significant step towards ensuring investor protection and market integrity. On August 25, SEBI unveiled a consultation paper seeking public feedback on a crucial proposal. The paper aims to curb the engagement between regulated entities and unregistered financial influencers, commonly known as ‘finfluencers’. These finfluencers operate on social and digital platforms, dispensing advice on various financial matters like investments, personal finance, banking products, insurance, and real estate.

SEBI’s proposal stresses that registered entities or intermediaries should maintain no connections with unregistered finfluencers when it comes to promoting or advertising their services. The consultation paper specifically states, “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).”

The rationale behind this proposal is the increasing concern over the potential for finfluencers to misguide and exploit uninformed investors and traders. In certain cases, these influencers have even engaged in unethical or illegal practices. Some brokers and mutual funds have employed such influencers to attract new customers, amplifying the need for regulatory oversight.

The consultation paper also emphasizes the importance of transparency. It suggests that finfluencers registered with SEBI, stock exchanges, or the Association of Mutual Funds in India (AMFI) should prominently display their registration numbers, contact information, investor grievance helplines, and provide appropriate disclaimers on their posts. Moreover, these entities must adhere to advertising guidelines laid down by regulators.

However, the paper strongly advises against regulated entities paying trailing commissions based on referral numbers. While SEBI permits limited referrals from retail clients and compensatory fees for such referrals by stockbrokers, it clearly supports a cautious approach. SEBI’s stance seems to lean towards encouraging existing users to promote products within defined limits.

Another noteworthy point in the paper is the obligation on registered intermediaries to sever any connections with unregistered entities that exploit their name, product, or service. They are required to take proactive measures to alert relevant enforcement agencies about such misuse. Legal actions, including filing cases under relevant sections of the Indian Penal Code for impersonation and fraud, may be pursued.

The consultation period for public feedback on these proposals is open until September 15, 2023, as informed by SEBI. This move showcases SEBI’s commitment to a fair and transparent financial environment, ensuring that investors are safeguarded against potential misleading practices and fraudulent activities.