SEBI has been concerned about unregistered entities who are providing advice on securities. Many such entities have massive following among the public and have the potential to make the public take financial decisions, just based on their “advice”. Many such people/ entities have also been termed finfluencers.
SEBI had come up with a circular in 2024 to curtail use of such finfluencers by SEBI registered intermediaries, with a view to cut-off the money flowing to them and thereby limiting their reach and influence.
SEBI has prohibited registered intermediaries and their agents from having any direct/ indirect association for advertising/ branding/ lead generation/ marketing/ promotion or other activities with persons engaging in the following activities-
1) Providing advice on securities without being registered
2) Claiming returns/ performance, which are not permitted
SEBI also defines “association”. It is any transaction involving money or money’s worth, client referral, interaction of IT systems or other such.
SEBI had earlier recognised the role of finfluencers in educating the public about personal finance and investments. However, it was SEBI’s thought that such “education” should not actually be advice in disguise. Towards that end, they have now clarified in the latest circular that any educational material will not carry live market data but will use three months old data to teach concepts but not provide “advice”. This seems to be a step in the right direction.
This engagement framework that is now being prescribed for associating with finfluencers makes compliance difficult for the registered intermediaries.
1. For instance a Depository Participant (DP) will need to ensure that any person who has a demat account does not directly/ indirectly indulge in the two prohibited activities ( mentioned earlier ). If they do come to know ( do not know how they can keep track of this ), they need to deactivate/ discontinue such an account. When there are lakhs of accounts, it is virtually impossible for a DP to find out proscribed activities and take action.
2. If a registered intermediary needs to deal with a finfluencer, they need to now be absolutely sure that this entity is not dealing/ dealt with the prohibited activities. This is going to be very difficult to establish. A way around could be to get an undertaking and indemnity from the finfluencer that they have not dealt nor will indulge in proscribed activities as defined by SEBI. But will that be enough?
3. If a registered intermediary is associated with digital platforms, it would be fine only if they can control and ensure that their advertisement/ content will appear on sites which do not indulge in prohibited activities. This means the intermediary should have a white list of platforms in which their content can appear, which is a tall order.
4. If the registered intermediary does not have control over the digital platforms and the content ends up with an entity which is in violation, the Registered Intermediary can be pulled up.
The intention may have been to ensure that registered intermediaries do not engage with those who violate SEBI Regulatory norms. But, the way the engagement with finfluencers is framed, it is almost impossible to associate with finfluencers, without subjecting oneself to enormous risks, as one can never be sure if those entities may have indulged in any prohibited activity any time in the past.
The author is the MD & Principal Officer at Ladder7 Wealth Planners and the author of the book “If God Was Your Financial Planner”.
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