SEBI consultation paper looks to curb the influence of finfluencers

On August 25, the Securities and Exchange Board of India (SEBI) introduced new rules to better safeguard investors and strengthen the financial system's integrity.

SEBI, which oversees financial activities, has taken steps to protect investors from misleading practices. They're making sure registered financial entities don't associate with unregistered influencers or entities that spread false information (finfluencers). This helps prevent risks and maintain trust.

As per new rules, registered entities can't partner with finfluencers for promotions or collaborations. They can't share private client info with such entities either, ensuring privacy. Finfluencers must show their credentials and follow rules.

Finfluencers registered with SEBI, stock exchanges, or AMFI must prominently display their registration number, contact details, and investor grievance redressal helpline, along with necessary disclosures and disclaimers. They are obligated to adhere rigorously to the prescribed code of conduct.

For fairness, SEBI guides financial ads and stops trailing commissions based on referrals. Limited referrals from regular clients are allowed, with proper fees. Registered entities must report any misuse of their name by unregistered ones and report any fraud attempts.

SEBI-registered intermediaries are obligated to actively distance themselves from any unregistered entity attempting to exploit their brand, products, or services. They must promptly alert the relevant enforcement agency to initiate suitable actions, which could encompass filing cases under Section 420 of the Indian Penal Code, 1860, for offences like impersonation and fraud, depending on the specific circumstances.

Recently, the activities of financial influencers, known as finfluencers, have gained significant attention from the public and media. These finfluencers, often unregistered, share engaging content and financial advice with their followers. While some are genuine educators, many are unregistered and unauthorized Investment Advisers (IAs) or Research Analysts (RAs).

The new rules aim to prevent SEBI-registered intermediaries/regulated entities from associating with such unregistered finfluencers, aiming to curb such compensation practices.