The Securities and Exchange Board of India (Sebi) on August 25, 2023 proposed to restrict the engagement between its regulated entities and unregistered “finfluencers”. It released a consultation paper seeking views from the public on this proposal until September 15, 2023.
‘Finfluencers’ are individuals who utilise social media and digital platforms to offer advice on various financial matters, such as investments, personal finance, banking products, insurance, and real estate.
Amid concerns regarding their authenticity and their power to mislead and exploit unsuspecting investors and traders, Sebi’s consultation paper proposes that the registered entities or intermediaries should have no relation with these unregistered finfluencers for any promotion or advertisement of their services.
Some finfluencers have recently drawn a lot of flak for resorting to unethical practices. Many brokers and mutual funds have partnered with certain such influencers to attract more customers.
Sebi said in its consultation paper that “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 consultation paper also proposes that finfluencers who are registered with Sebi, stock exchanges, or the Association of Mutual Funds in India (Amfi) “shall display their appropriate registration number, contact details, investor grievance redressal helpline, and make appropriate disclosure and disclaimer on any posts”.
“Such entities shall comply with the advertisement guidelines issued by Sebi, stock exchanges and Sebi recognised supervisory body from time to time. Sebi registered intermediaries/regulated entities shall not pay any trailing commission based on the number of referrals as referral fee,” it added.
Sebi said it permits limited referrals from retail clients, along with the payment of fees for such referrals by stockbrokers, within certain boundaries.
Sebi’s consultation paper goes beyond restrictions and also suggests that registered intermediaries to take active measures to dissociate themselves from any unregistered entity using their name, product or service.
Similarly, the Advertising Standards Council of India (ASCI) had announced revisions to its influencer advertising guidelines on August 17, 2023.
Sebi has mandated that ‘finfluencers’ in the Banking, Financial services, and Insurance (BFSI) sector are registered with Sebi before providing investment-related advice. These registered finfluencers also have to prominently display their Sebi registration number alongside their qualifications.