Sebi set to rein in ‘finfluencers’

Plans to restrict brokers, MFs entering into financial relations with unregistered ‘finfluencers’
Image used for representational purpose only. (File Photo)
Image used for representational purpose only. (File Photo)

MUMBAI:  The Securities and Exchange Board of India (Sebi) has decided to tighten the noose on erratic finfluencers (a term coined for financial influencers) who mislead retail investors by offering them biased investment advice. 

The capital market regulator is planning to restrict stock exchanges, brokers and mutual funds to enter into financial relations with unregistered finfluencers. The regulator will bar stock exchanges, brokers and Mutual Funds (MFs) to advertise with unregistered finfluencers, paying them referral fees or sharing profits with them.

“We will float a consultation paper in a few months. One of the important elements in that will be the Regulated Entities such as exchanges, brokers and mutual funds, in any form, whether it is advertising or equity or profit sharing or referral fees or in any other form, they will not be able to keep relations with unregistered entities,” Madhabi Puri Buch, chairperson, Sebi told reporters on late Wednesday night, replying to a query on the need to regulate finfluencers.

“We believe that if you are an entity regulated by us then your partners and your relations should also be regulated. You cannot advertise on channels or platforms of unregulated entities, you cannot pay them referral fees and cannot share your link with them. This will be a very important element of our consultation paper,” she added.

The idea behind the regulator’s planned move is to discourage finfluencers to offer investment advice by cutting their source of revenue from stock exchanges, brokers and mutual funds. “Sebi’s intention is not to regulate those finfluenceres who are teaching people about investing or creating general awareness about stock market and investment. The intention is to regulate those finfluencers and entities who are giving advice about stocks and portfolio recommendations through their social media platforms,” a source told this newspaper.

The pressure has been mounting on Sebi to regulate the growing number of finlfluencers who have mushroomed over the past few years across the country. Most of them are unqualified offer investment advice to retail investors and are unregistered with the regulator. By offering investment advice, they earn huge money by way of commissions from companies and other entities.

The dilemma with the Sebi is that they do not fall under its purview and have no jurisdiction over finfluencers. With the number of such people thriving on social media platforms like Youtube, Instagram, Telegram, WhatsApp and Twitter in recent years, Sebi has been cautioning the public against falling into their advisory traps.

Finfluencers under Sebi lens

  •   Mutual funds, brokers, and exchanges will be barred from paying referral fees to finfluencers
  •   Finfluencers giving stock advice or portfolio recommendations to come under Sebi’s radar.
  •   Sebi does not intend to regulate finfluencers who are only teaching people about investing.
  •   Mutual funds, brokers, and exchanges will not be allowed to advertise on finfluencers’ platforms

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The New Indian Express