SEBI proposes brokers stay away from unregulated financial influencers
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Market regulator Securities Exchange Board of India (SEBI) on Friday released a consultation paper on the association of registered intermediaries with ‘finfluencers’ or digital and social media influencers broadly operating in the space of financially literacy and business.
The move comes amid wide public and media attention garnered by the finfluencers in recent months, not to mention their growing clout across digital platforms like YouTube, Instagram, X (formerly Twitter), and more.
The paper specifically mentions unregistered entities or finfluencers who are enticing their followers to purchase products, services, or securities in return for undisclosed compensation from platforms, producers or products (For example: a social handle asks users to purchase a specific mutual fund, without disclosing that it has received a marketing fee from the fund house).
The paper defines finfluencers as persons who provide information on various financial topics such as investing in securities, personal finance, banking products, insurance, real estate investment, etc. through social media platforms such as Instagram, Facebook, YouTube, LinkedIn, and Twitter.
“Thus, the activities of finfluencers may deal in areas regulated by financial sector regulators such as SEBI, RBI, PFRDA, and IRDA," it added.
SEBI said that as these finfluencers are not bound by the code of conduct of the market regulator, they may have to disclose any potential conflict of interest such as their association with or any material interest in the products, services, or securities that they promote.
“SEBI has come across instances where SEBI registered intermediaries/regulated entities may be relying on such unregistered/unregulated finfluencers to promote their products and services," the market regulator said.
The paper's proposals are likely to disrupt the revenue models of finfluencers (if they need to make disclosures to their followers) in a bid to reduce the perverse incentives in the ecosystem. SEBI also said that it intends to take action against all unregistered finfluencers who breach the proposed regulations.
“No SEBI registered intermediaries/regulated entities or their agents/representatives shall, directly or indirectly, have any association/relationship in any form, whether monetary or non-monetary, for any promotion or advertisement of their services/products, with any unregistered entities ( including finfluencers)," the SEBI release said.
The market regulator cleared that all entities registered or regulated by SEBI stock exchanges or AMFI shall not share any confidential information of their clients with any unregistered entities.
“Finfluencers registered with SEBI or stock exchanges or AMFI in any capacity shall display their appropriate registration number, contact details, investor grievance redressal helpline, and make appropriate disclosure and disclaimer on any posts. They shall also fully adhere to the code of conduct under the terms of their relevant registration," the paper said.
“Such entities shall comply with the advertisement guidelines issued by SEBI, stock exchanges, and SEBI-recognized supervisory body from time to time," it added.
The market regulator has invited public comments on the proposals which can be submitted by 15 September.
The move comes amid wide public and media attention garnered by the finfluencers in recent months, not to mention their growing clout across digital platforms like YouTube, Instagram, X (formerly Twitter), and more.
The paper specifically mentions unregistered entities or finfluencers who are enticing their followers to purchase products, services, or securities in return for undisclosed compensation from platforms, producers or products (For example: a social handle asks users to purchase a specific mutual fund, without disclosing that it has received a marketing fee from the fund house).
The paper defines finfluencers as persons who provide information on various financial topics such as investing in securities, personal finance, banking products, insurance, real estate investment, etc. through social media platforms such as Instagram, Facebook, YouTube, LinkedIn, and Twitter.
“Thus, the activities of finfluencers may deal in areas regulated by financial sector regulators such as SEBI, RBI, PFRDA, and IRDA," it added.
SEBI said that as these finfluencers are not bound by the code of conduct of the market regulator, they may have to disclose any potential conflict of interest such as their association with or any material interest in the products, services, or securities that they promote.
“SEBI has come across instances where SEBI registered intermediaries/regulated entities may be relying on such unregistered/unregulated finfluencers to promote their products and services," the market regulator said.
The paper's proposals are likely to disrupt the revenue models of finfluencers (if they need to make disclosures to their followers) in a bid to reduce the perverse incentives in the ecosystem. SEBI also said that it intends to take action against all unregistered finfluencers who breach the proposed regulations.
“No SEBI registered intermediaries/regulated entities or their agents/representatives shall, directly or indirectly, have any association/relationship in any form, whether monetary or non-monetary, for any promotion or advertisement of their services/products, with any unregistered entities ( including finfluencers)," the SEBI release said.
The market regulator cleared that all entities registered or regulated by SEBI stock exchanges or AMFI shall not share any confidential information of their clients with any unregistered entities.
“Finfluencers registered with SEBI or stock exchanges or AMFI in any capacity shall display their appropriate registration number, contact details, investor grievance redressal helpline, and make appropriate disclosure and disclaimer on any posts. They shall also fully adhere to the code of conduct under the terms of their relevant registration," the paper said.
“Such entities shall comply with the advertisement guidelines issued by SEBI, stock exchanges, and SEBI-recognized supervisory body from time to time," it added.
The market regulator has invited public comments on the proposals which can be submitted by 15 September.
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