To restrict the association of financial influencers (finfluencers) with registered intermediaries and regulated entities, Securities and Exchange Board of India (SEBI) proposes enforcement action to disrupt the revenue model of finfluencers while barring intermediaries and regulated entities from associating with unregistered entities, including finfluencers, for any promotion or advertisement of their services and products.
SEBI published a consultation paper seeking comments from the public to restrict the association of SEBI-registered intermediaries and regulated entities with unregistered finfluencers. "In recent times, activities of financial influencers or finfluencers have attracted wide public and media attention. These finfluencers are usually unregistered entities providing catchy content, information, and advice on various financial topics to their several followers."
As Moneylife reported, there are people who blindly trust influencers and celebrities, only to be misled by fake or exaggeratedly positive posts about companies, products and services. On the other hand, the inability to distinguish has made even credible voices and opinions suspect. (Read: Manufacturing Reputations: A Sting Operation on the World Fin-influencers
) The ministry of consumer affairs (MCA) and Advertising Standards Council of India (ASCI) have already established their own sets of rules for all categories of influencers drawing some clear boundaries and responsibilities.
According to the market regulator, finfluencers often attract investors or prospective investors through engaging stories, messages, reels and videos on various social media platforms such as Instagram, Facebook, YouTube, LinkedIn and Twitter.
"However, finfluencers not registered with the relevant financial sector regulator may not have the requisite qualifications or expertise on the subject. Worse, not being formally subject to a financial sector regulator's code of conduct, they may not disclose any potential conflict of interest such as their association with or interest in the products, services or securities they promote," SEBI says.
According to the market regulator, while some of the finfluencers may be genuine educators, many of them are effectively unregistered and unauthorised investment advisers (IAs) or research analysts (RAs). SEBI says a separate consultation paper proposes a unique fee payment platform for registered IAs and RAs that should help investors identify, isolate and avoid unregistered entities and finfluencers.
Other unregistered entities and finfluencers may be effectively enticing their followers to purchase products, services, or securities in return for undisclosed compensation from platforms or producers. "This paper seeks to restrict the association of SEBI registered intermediaries and regulated entities with such unregistered finfluencers, to curb the flow of such compensation."
Many unregistered and unregulated finfluencers directly or indirectly promote products, services or securities. They may induce clients to avail of these products or services in return for a referral fee for usage of the product, channel, platform, or services that they advertise– such referral fee may be variable like per use or per user or fixed (retainer model), or a combination of both. The commission may be in an upfront or trail manner, non-cash benefits such as free usage of products or services, compensation received directly from the social media or other platforms where they share their content and profit sharing with the underlying product, channel, platform, or services.
SEBI says it came across instances where registered intermediaries and regulated entities may be relying on such unregistered or unregulated finfluencers to promote their products and services.
Here are the proposed measures by SEBI to limit the association of registered intermediaries and regulated entities and their agents or representatives with unregistered entities, including finfluencers...
1. Besides undertaking enforcement action against unregistered finfluencers who breach SEBI regulations, this paper proposes to disrupt the revenue model for such finfluencers so that the perverse incentives in the ecosystem reduce.
2. No SEBI registered intermediaries or regulated entities or their agents or representatives shall, directly or indirectly, have any association or relationship in any form, whether monetary or non-monetary, for any promotion or advertisement of their services or products with any unregistered entities (including finfluencers).
3. Entities registered/regulated by SEBI or, stock exchanges or AMFI shall not share any confidential information of their clients with any unregistered entities.
4. Finfluencers registered with SEBI or, stock exchanges or AMFI in any capacity shall display their appropriate registration number, contact details, and 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.
5. Such entities shall comply with the advertisement guidelines issued by SEBI, stock exchanges and SEBI-recognised supervisory body from time to time.
6. SEBI-registered intermediaries and regulated entities shall not pay any trailing commission based on the number of referrals as referral fee.
7. Limited referrals from retail clients, and payment of fees for such limited referrals by stockbrokers shall be allowed.
8. SEBI-registered intermediaries shall take active measures to dissociate themselves from any unregistered entity using their name, product or service. They shall take necessary action to bring it to the notice of the enforcement agency concerned to take appropriate action, including filing a case under section 420 of the Indian Penal Code (IPC) for impersonation and fraud as may be applicable.
SEBI says comments or suggestions on the proposal may be forwarded by email to [email protected]
latest by 15 September 2023. While sending the email, kindly mention the subject as "Comments on Consultation paper on Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers)".