SEBI Implements New Rules to Regulate Financial Influencers

On June 27, the Securities and Exchange Board of India (SEBI) approved regulations to address the risks associated with unregistered financial influencers. The new rules prohibit registered entities from collaborating with unregistered investment advisors, referred to as 'finfluencers'. However, SEBI allows registered entities to work with unregistered entities solely for the purpose of sharing educational content, according to reports. Additionally, SEBI mandated that registered entities must ensure their associates do not engage in prohibited activities.

The market regulator stated in a press release, "Persons regulated by the Board and their agents must not have any association, whether involving financial transactions, client referrals, IT system interactions, or other similar associations, directly or indirectly, with any person who provides advice, recommendations, or makes claims of returns or performance related to securities, unless permitted by the Board."

SEBI is considering comprehensive measures to regulate 'finfluencers' due to rising concerns about investors being misled by unregulated advice. SEBI Chairperson Madhabi Puri Buch mentioned on March 11, at an Association of Mutual Funds in India (AMFI) event in Mumbai, that the proposed regulations aim to streamline the registration process for these influencers, ensuring greater transparency and accountability while facilitating 'ease of registration.'

The 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, requiring 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 also display a disclaimer with their qualifications, registration, or certification details in a readable or prominent 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.