SEBI brings in new norms to regulate finfluencers

• SEBI has brought in new norms to regulate financial influencers or “finfluencers”.
• The new norms prevent its regulated entities from partnering with unregistered individuals.
• The new norms are aimed at minimising risks to retail investors who are easily influenced by such entities.

Stock market watchdog Securities Exchange Board of India (SEBI) has brought in new norms to regulate unregistered financial influencers or “finfluencers” as it looks to clamp down on associations between its regulated entities and unregistered individuals.

SEBI, in three separate notifications, has brought in new norms amid growing concerns about the potential risk associated with such finfluencers. SEBI's board had approved the new regulations in a proposal last month.

What are the new regulations for finfluencers?

As per the new regulations, SEBI-regulated entities and their agents are restricted from engaging in financial transactions, client referrals or interaction of information technology systems with any other person who, directly or indirectly, provides advice, recommendations or makes explicit claims of return.

No person regulated by the Board (SEBI) or the agent of such a person shall have any direct or indirect association with another person who provides advice or any recommendation, directly or indirectly, in respect of or related to a security or securities, unless the person is registered with or otherwise permitted by the Board to provide such advice or recommendation; or makes any claim, of returns or performance expressly or impliedly, in respect of or related to a security or securities, unless the person has been permitted by the Board to make such a claim," SEBI said.

SEBI has revised the regulations governing depository participants, intermediaries, and securities contracts. This will prevent mutual fund houses, registered investment advisors (RIA) and stock brokers from partnering with such influencers.

SEBI has however allowed an exception for a limiter period for investor education partnerships. In such partnerships, finfluencers will not be allowed to offer recommendations or make claims about returns or financial performance.

The new norms have been introduced to protect retail investors who get easily influenced by such entities offering biased or misleading information to earn a commission.

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