SEBI tightens rules for unregistered finfluencers, bars registered entities from dealing with them

Markets watchdog Securities and Exchange Board of India (SEBI) has amended rules to regulate unregistered financial influencers, popularly called finfluencers, amid growing concerns over the potential risk associated with such unregistered persons.

SEBI has restricted associations between its regulated entities and unregistered individuals in three separate notifications.

This development comes after the market regulator approved a proposal in this regard last month.

What does SEBI's notifications on finfluencers say?

As per the notifications, the persons regulated by SEBI and the agents of such persons will not have any association like any transaction involving money, referral of a client, interaction of information technology (IT) systems with any other person who, directly or indirectly, provides advice, recommendation or makes an explicit claim of return.

"No person regulated by the Board (SEBI) or the agent of such a person shall have any direct or indirect association, with another person who provides advice or any recommendation, directly or indirectly, in respect of or related to a security or securities, unless the person is registered with or otherwise permitted by the Board to provide such advice or recommendation; or makes any claim, of returns or performance expressly or impliedly, in respect of or related to a security or securities, unless the person has been permitted by the Board to make such a claim," the regulator said.

Market experts said that by requiring finfluencers to register with SEBI and adhere to specific guidelines, the regulator is setting a standard for accountability and expertise in the sector.

The move would ensure that mutual fund houses, research analysts, registered investment advisors and stock brokers do not partner with finfluencers.

On the other hand, a small window has been provided for investor education from such partnerships. This is subject to the condition that these finfluencers do not give recommendations or claim any return or performance.

This came amid growing concern over the risks associated with unregulated finfluencers who might offer biased or misleading advice. They usually operate on a commission-based model.

Finfluencers have significantly impacted their followers' financial decisions in the last few years, and thus, SEBI's regulatory framework can make them accountable and responsible for the advice they provide.

SEBI has amended norms governing depository participants, intermediaries, and securities contracts to bring this into effect.