SEBI's consultation paper on association of SEBI registered intermediaries with unregistered entities (including Finfluencers)

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Keeping in view the exponential growth of finfluencers, who are generally unregistered and unauthorized entities providing catchy content on various financial topics to their several followers and are enticing their followers to purchase products, services, or securities in return for undisclosed compensation from platforms:

SEBI proposes the following in this consultant paper:

  • To restrict the association of SEBI registered intermediaries/regulated entities like stock brokers , RIAs with such unregistered finfluencers, to curb the flow of such compensation

  • A separate consultation paper proposes a unique fee payment platform for registered IAs and RAs that should help investors identify, isolate and avoid Unregistered entities/ finfluencers.

  • Undertaking enforcement action against unregistered finfluencers who breach SEBI regulations.

SEBI registered intermediaries:

  • Shall not have any direct or indirect 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).

  • Shall not share any confidential information of their clients with any unregistered entities.

  • Shall not pay any trailing commission based on the number of referrals as referral fee.

  • Shall only have limited referrals from retail clients, and payment of fees for such limited referrals by stockbrokers shall be allowed.

  • Shall take active measures to dissociate themselves from any unregistered entity using their name, product or service. They shall take necessary action to bring it to the notice of enforcement agency concerned to take appropriate action, including filing case under section 420 of the Indian Penal Code, 1860 for impersonation and fraud, etc. as may be applicable

Finfluencers registered with SEBI or stock exchanges or AMFI:

  • Shall display their appropriate registration number, contact details, investor grievance redressal helpline, and make appropriate disclosure and disclaimer on any posts and also fully adhere to the code of conduct under the terms of their relevant registration.

  • Shall comply with the advertisement guidelines issued by SEBI, stock exchanges and SEBI recognised supervisory body from time to time.

Link to SEBI’s consultant paper:

https://www.sebi.gov.in/reports-and-statistics/reports/aug-2023/consultation-paper-on-association-of-sebi-registered-intermediaries-regulated-entities-with-unregistered-entities-including-finfluencers-_75932.html

Your thoughts on this?

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I feel this looks good on paper but how will it effectively be implemented? Youtube , twitter ,telegram , WhatsApp are the place where these people are thriving, so i think these platforms should also be required to place some checks (similar) to what Rigi did or more stringent.

Also i would say some fininfluencer are also providing very effective information about the market so either regulator should have some reward system in place or else no one would spend there time if there is no incentive.

Also become IA or RA has its own challenges, a hell lot of changes are required to have a effective impact