Coming down heavily on financial influencers (finfluencers) providing unauthorised advice or making unapproved return claims, market regulator Securities and Exchange Board of India (SEBI) has barred finfluencers from using live stock prices or making claims on returns. SEBI also directed registered intermediaries not to make or receive payments or share client information with finfluencers. According to the market regulator, these regulations are already in force since 29 August 2024, followed by
directions issued on 22 October 2024 to regulated entities (REs).
These two prohibited activities are:
(i) providing advice or any recommendation, directly or indirectly, in respect of or related to a security or securities, without being registered with or otherwise permitted by the board to provide such advice or recommendation; and
(ii) making any claim of returns or performance expressly or impliedly, in respect of or related to a security or securities, without being permitted by the board to make such a claim.
Clarifying on a person engaged in investor education and finfluencers, SEBI says a person engaged solely in education shall mean that such person is not engaged in any of the two prohibited activities.
The market regulator also mandated any unregistered adviser or finfluencer to use three-month-old prices of scrips to make their point. "Such person should not be using the market price data of the preceding three months to speak, talk or display the name of any security, including using any code name of the security in his or her talk or speech, video, ticker and screen share indicating the future price, advice or recommendation related to security or securities."
Further, SEBI says, "Sharing client information is of similar nature as of 'referral of a client'. Hence, making any payment or receiving payment or sharing any client information from or with any person shall amount to "association" under these regulations, and is not permitted."
The term 'association', the market regulator says, includes any money transaction, referring a client, sharing information between systems or any similar type of relationship.
In October 2024, SEBI directed all regulated entities, including recognised stock exchanges, clearing corporations and depositories and their agents, to terminate their existing contracts with unregistered financial advisers or 'finfluencers' within three months.
In
a circular, SEBI says, "While the guidelines on the preventive and curative measures for the digital platforms for their recognition as a specified digital platform are being specified separately, the persons regulated by the board, including recognised stock exchanges, clearing corporations and depositories, and their agents are advised to terminate their existing contracts, if any, with persons engaged in the activities mentioned in clauses (i) or (ii) of paragraph 2 of this circular, within three months from the date of issuance of this circular."
Activities by persons mentioned by SEBI in para2 include finfluencers providing stock investment advice and making claims of returns or performance.
In June 2024, SEBI approved norms to regulate unregistered financial influencers or finfluencers.
Many finfluencers avoid obtaining proper registration due to these stringent requirements. Instead, they often receive undisclosed financial compensation from SEBI-registered entities and intermediaries, potentially influencing their followers' investment decisions without the necessary expertise or transparency.
To address the concerns related to certain persons, including unregulated entities inducing investors to deal in securities based on inappropriate claims, the SEBI board approved norms to restrict associations between its regulated entities and unregistered individuals.
The market regulator says, "Persons regulated by the (SEBI) board and the agents of such persons should 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 or claim."
However, SEBI says these restrictions will not apply to persons regulated by its board or their agents for their association with persons who are exclusively engaged in investor education and do not, directly or indirectly, provide advice, recommendation or claim of return or performance.
