The Securities and Exchange Board of India (Sebi) on June 27 approved the proposal to ban the association of regulated entities with unregistered "finfluencers".
The press statement issued by the market regulator said: "Persons regulated by the Board and the agents of such persons shall not have any association, like any transaction involving money or money's worth, referral of a client, interaction of information technology systems or any other association of similar nature or character, directly or indirectly, with any other person who, directly or indirectly, provides advice or recommendation or makes any implicit or explicit claim of return or performance, in respect of or related to security or securities unless permitted by the Board to provide such advice/recommendation."
It stated that it shall the responsibility of the registered entity to ensure that the person with whom it is associated does not indulge in prohibited activities.
Financial influencers, commonly called ‘finfluencers’, are persons who provide advice on various financial topics such as investing in securities, personal finance, banking products, insurance and real estate investment, among others, through social or digital media platforms. They are considered to have the ability to influence the financial decisions of their followers.
In recent years, finfluencers have drawn lot of flak for misguiding and exploiting gullible investors and traders. Some have resorted to practices that can be outright unethical or even illegal. Manu such influences have been contracted by brokers and mutual funds to bring more customers.
The market regulator had come out with a consultation paper in August on this issue and asked for public comments.
The consultation paper suggested that the finfluencers who are registered with the 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 should comply with the advertisement guidelines issued by the regulators, it said, further adding that the regulated entities should "not pay any trailing commission based on the number of referrals as referral fee".
Though Sebi said that limited referrals from retail clients, and payment of fees for such limited referrals by stockbrokers shall be allowed, suggesting that the market regulator has no problem on encouraging existing users to advertise their products in a limited way.
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