Due to rising worries about the risks connected with unregistered financial influencers (finfluencers), markets regulator Sebi has revised standards to regulate them. Through three distinct announcements, the authority has limited the ability of its regulated businesses to do business with unregistered persons.
This followed last month’s approval of a similar plan by the Sebi board. According to the notices, individuals who are regulated by Sebi and their agents are not allowed to be associated with anyone who offers advice, recommendations, or makes explicit claims of return in any way, whether through financial transactions, client referrals, or interactions with information technology systems.
According to the regulator, no individual or agent regulated by the Board (Sebi) may be directly or indirectly associated with someone who gives advice or recommendations about securities (either directly or indirectly), unless that person is registered with or otherwise allowed by the Board to do so. Similarly, no one can make any claim—expressly or impliedly—about returns or performance related to securities (either directly or indirectly) unless they have been authorized to do so by the Board.
Sebi Setting Standards for Accountability
According to industry insiders, Sebi is establishing a benchmark for competence and transparency in the industry by mandating that finfluencers register with the regulator and follow certain rules.
This change would make it such that stock brokers, research analysts, mutual fund firms, and registered investment advisors can’t work together with finfluencers.
However, such cooperation has opened a modest opportunity for investor education. This is predicated on the premise that these finfluencers will not make any suggestions or assert any kind of profit or success.
Technology platforms are being encouraged by Sebi to build systems that can detect and track unregulated content to enhance its supervision. A larger strategy to improve its regulatory structure includes this proactive approach, which is part of Sebi’s overall plan. For their part, Kamlesh Varshney, a whole-time member of Sebi said that Sebi is thinking about easing several regulations about research analysts and registered investment advisers. At the next Sebi board meeting in September 2024, the idea—which garnered more than a thousand replies—is likely to be considered.
Why Sebi Has Taken This Step?
The new Sebi standards prohibit any association, whether direct or indirect, between unregistered finfluencers and businesses that are regulated by Sebi. These entities include mutual fund houses, stockbrokers, and research analysts. With the help of new restrictions, ordinary investors will be protected from the biased or deceptive advice that is frequently provided by these influencers, who typically operate on a commission-based compensation model.
As long as there are no promises for financial advice or returns, there is still a limited window of opportunity for investor education, even though Sebi’s crackdown is intended to protect investors. By establishing these severe requirements, the Securities and Exchange Board of India (SEBI) hopes to encourage accountability and guarantee that only those who are certified and regulated will provide financial guidance in the market.
Tripti Agarwal
