Finfluencer Guidelines

The Securities and Exchange Board of India (SEBI) has recently updated its guidelines to further strengthen the regulation of financial influencers, commonly known as ‘finfluencers’, to protect investors from unregistered advisory services and misleading financial content. These measures aim to ensure that only qualified and registered individuals or entities provide investment advice, thereby safeguarding the interests of the investing public.

Regulatory Framework

The SEBI looked into the increasing frenzy around financial influencers and the kind of impact they had on the general public which is why the provisions were brought through the following amendments in mid-2024:

  1. Securities and Exchange Board of India (Intermediaries) (Amendment) Regulations, 2024;
  2. Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Fourth Amendment) Regulations, 2024;
  3. Securities and Exchange Board of India (Depositories and Participants) (Second Amendment) Regulations, 2024.

Furthermore, SEBI has recently provided clarifications on the abovesaid amendments which tightens the authority’s grip around finfluencers’ conduct.

Key Provisions of SEBI’s Guidelines

  1. Restriction on Real-Time Data Usage: Finfluencers engaged in educational activities are now prohibited from using live or recent stock market data. They can only reference stock prices with a minimum three-month lag. This rule is designed to prevent unregistered individuals from offering real-time trading tips under the guise of education.
  2. Prohibition of Associations with Unregistered Entities: SEBI has mandated that all regulated entities, including brokers, mutual funds, and investment advisers, must sever any direct or indirect associations with unregistered finfluencers. This includes financial transactions, client referrals, information sharing, and promotional activities.
  3. Limitations on Investor Educators: Individuals or entities involved solely in investor education are restricted from recommending specific stocks or securities, using recent market data to predict trends, or making claims regarding investment returns. This measure ensures that educational content remains unbiased and free from implicit investment advice.
  4. Advertising Restrictions: SEBI has imposed strict controls on advertising practices, stating that SEBI-registered firms may only run advertisements if they can ensure that their ads do not appear alongside financial influencers. Any failure to control ad placement that results in association with influencers would be considered a violation.

Implications for Finfluencers and Regulated Entities

These guidelines signify SEBI’s commitment to maintaining market integrity and protecting investors from potential misinformation. Finfluencers must now either seek proper registration with SEBI to continue offering investment advice or strictly confine their activities to general financial education without delving into specific securities or market predictions. Regulated entities are also held accountable for ensuring compliance, with penalties, suspension, or cancellation of SEBI licenses possible for violations. By enforcing these regulations, SEBI aims to create a more transparent and secure investment environment, ensuring that investors receive accurate and reliable information from qualified sources.

Registration as Investment Advisors

Finfluencers who want to continue giving financial advice along with providing education to the public must register as ‘Investment Advisors’ with SEBI. An overview of the process is as below:

  1. The Applicant should make an application in Form A, numbered, duly signed and stamped under SEBI (Investment Advisers) Regulations, 2013 with all the necessary supporting documents.
  2. Generally, timeline for a reply from SEBI remains within one month. However, the time taken for registration depends on how the applicant fulfils all the registration requirements.
  3. The applicant must mention the following in the covering letter:
    1. Whether the applicant is providing investment advisory services prior to these Regulations. If yes, provide details.
    2. Details of the investment advice provided prior to such application.
    3. It is applying for registration of as a new Investment Adviser providing investment advisory services.
  4. Application fees of INR 5,000/- by way of bank draft in favour of “The Securities and Exchange Board of India”, payable at Mumbai.
  5. On SEBI approval, the applicant must pay registration fee of INR 1,00,000/- (If corporate) and INR 10,000/- (If Individual) by way of bank draft in favour of “The Securities and Exchange Board of India”, payable at Mumbai. On receipt of registration fees, SEBI will grant the applicant the certificate of registration as an IA.

Conclusion

As the finfluencer landscape continues to evolve, clear and responsible guidelines are essential to ensure transparency, credibility, and consumer protection. This is a very new market which requires SEBI’s constant overview. One thing that is guaranteed is that the increased strictness from the financial regulator will contribute towards better practices from market players and reduction in taking advantage of uneducated public.

Finfluencer Guidelines

February 22, 2025 No Comments

The Securities and Exchange Board of India (SEBI) has recently updated its guidelines to further strengthen the regulation of financial

Read More »