Market regulator Securities and Exchange Board of India (Sebi) Friday proposed that intermediaries should dissociate themselves from unregistered financial influencers, also known as “finfluencers”.
The Sebi consultation paper comes amid a rise in the number of unregistered investment advisors giving out stock tips on social media platforms.
“No SEBI registered intermediaries or regulated entities or their agents or representatives shall, directly or indirectly, have any association or relationship in any form, whether monetary or non-monetary, for any promotion or advertisement of their services or products, with any unregistered entities (including finfluencers),” Sebi said in the consultation paper.
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The paper said SEBI-registered intermediaries should take active measures to dissociate themselves from any unregistered entity using their name, product or service.
Finfluencers are usually unregistered entities providing catchy content, information, and advice on various financial topics to several followers. While some of them may be genuine educators, many of them are unauthorised investment advisers or research analysts.
The paper proposed that entities registered or regulated by Sebi, stock exchanges or the Association of Mutual Funds in India should not share confidential information of their clients with unregistered entities.
It said that registered finfluencers should display their appropriate registration number, contact details, investor grievance redressal helpline, and make appropriate disclosure and disclaimer on any posts.
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Besides undertaking enforcement action against unregistered finfluencers who breach SEBI regulations, the paper also proposed to disrupt the revenue model for such finfluencers, so that the perverse incentives in the ecosystem are reduced.
“SEBI registered intermediaries or regulated entities will not pay any trailing commission based on the number of referrals as referral fee,” it said.
In a separate consultation paper, released on Friday, the markets regulator proposed to create a closed ecosystem for fee collection by its registered IAs and RAs from their clients. The ecosystem will help investors ensure that their payments are reaching only registered IAs and RAs.
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“It will also instil confidence among investors that fees are being paid to a SEBI registered IA/ RA and will motivate them to approach only registered IAs/RAs for all their investment advisory/research service needs,” it said.
The details of the mechanism for fee collection shall be disclosed by IAs and RAs to their clients and shall form part of the client agreement, the draft paper said.
The regulator has sought public comment on both the consultation papers by September 15, 2023.