Sebi crackdown: What new rules on regulated entities dealing with finfluencers mean
Sebi crackdown: What new rules on regulated entities dealing with finfluencers mean
The Securities and Exchange Board of India (Sebi) has taken a bold step by banning regulated entities from associating with unregistered influencers. This crackdown targets anyone who provides financial advice or makes claims about securities without Sebi's registration.
Sebi's move addresses the troubling alliance between market intermediaries and shady influencers. "Finfluencers" have been linked to discount brokers, driving up trading activity and often misleading investors with false profit claims on platforms like YouTube and Telegram.
KC Jacob from Economic Laws Practice highlighted that investors have faced numerous issues due to finfluencers' recommendations. These unlicensed advisors have been actively promoting broker and mutual fund products on social media. Despite a February 2023 circular from NSE requiring brokers to get prior approval before paying influencers, finfluencers continued their operations unabated.
Jacob noted that Sebi's new restrictions on market intermediaries dealing with unregistered finfluencers aim to curb these practices. However, the effectiveness of this framework remains to be seen.
While top finfluencers and leading brokers may operate transparently, there are cases where influencers fail to disclose kickbacks from brokerages, misleading investors. Anshul Arzare, MD and CEO of YES Securities, emphasized the fiduciary duty of financial intermediaries to remain neutral and unbiased, warning that ties with unregistered influencers undermine this trust and pose significant risks.
Shiju PV, Senior Partner at IndiaLaw LLP, questioned the practicality of a complete ban on advertising through such platforms, cautioning against infringing on free speech. He suggested that Sebi should enforce advertising standards on regulated entities and penalize any breaches.
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