Sebi regulates finfluencers, bans registered entities from associating with them

Capital markets watchdog Sebi on Thursday decided to regulate financial influencers or finfluencers amid growing concerns about potential risk associated with such persons.

Why is SEBI regulating finfluencers?
In order to address the concerns related to certain persons including unregulated entities inducing investors to deal in securities based on inappropriate claims, Sebi board approved norms to restrict associations between its regulated entities and unregistered individuals.

This came amid growing concern over the potential risks associated with unregulated finfluencers who might offer biased or misleading advice. They usually work on a commission-based model.

The persons regulated by Sebi and the agents of such persons will not have any association like any transaction involving money, referral of a client, interaction of information technology systems with any other person who, directly or indirectly, provides advice recommendation or makes explicit claim of return or performance.

Finfluencers have significantly impacted their followers’ financial decisions in the last few years and thus Sebi’s regulatory framework can make them accountable and responsible for the advice they provide.

How is SEBI managing fee collection for advisors?
Also, the regulator has decided to create a closed ecosystem for fee collection by Sebi-registered Investment Advisers (IAs) and Research Analysts (RAs) from their clients.

This ecosystem will help investors ensure that their payments are reaching only registered IAs and RAs. This would also help investors identify, isolate, and avoid unregistered entities, who would be unable to access this closed ecosystem.

“The Board approved the proposal to facilitate a mechanism on an optional basis for fee collection by Sebi registered IAs and RAs which shall create a closed ecosystem thereby giving investors comfort that they are interacting with registered IAs and RAs,” the statement noted.

The mechanism will facilitate investors for availing the services and making the payment of fees only to registered IAs and RAs thus creating trust in the ecosystem.

Given this, the mechanism will give recognition to registered IAs and RAs and help investors differentiate them from unregistered entities acting as IAs and RAs.

The mechanism has been kept optional based on public consultations, Sebi said.