Rules tightened for finfluencers, Sebi bars registered entities from dealing with them

The Securities and Exchange Board of India (SEBI) on Thursday set the ground rules for unregistered financial influencers, or 'finfluencers,' prohibiting regulated entities from dealing with them.

This move marks a significant step in protecting investors from misleading financial advice and ensuring that all financial influencers operate within a regulated framework.

In a press release, SEBI stated: "Entities regulated by SEBI and their agents are prohibited from associating, directly or indirectly, with any individual or entity that offers financial advice or makes performance claims without SEBI’s permission. This includes any form of monetary transactions, client referrals, or IT system interactions."

The responsibility lies with the registered entities to ensure their associates do not engage in such prohibited activities.

Finfluencers, who provide advice on topics like investing, personal finance, and real estate through digital platforms, have gained significant influence over their followers’ financial decisions. 

However, their rise has also led to numerous instances of misleading investors. Some finfluencers have even partnered with brokers and mutual funds to attract more customers, often engaging in unethical or illegal practices.

SEBI's action follows a consultation paper released in August seeking public input on the issue. The paper proposed that registered finfluencers should display their registration number, contact details, investor grievance helpline, and appropriate disclaimers on their posts. 

It also emphasized that regulated entities should not pay referral fees based on the number of referrals.

SEBI clarified that while limited referrals from retail clients and the payment of fees for such referrals by stockbrokers are allowed, extensive marketing and referral practices by unregistered finfluencers will not be tolerated.