SEBI Sets Regulatory Framework for Finfluencers to Enhance Investor Protection

On Thursday, the Securities and Exchange Board of India (Sebi) decided to regulate financial influencers, also known as finfluencers. This move addresses concerns about the risks posed by these individuals. Sebi's board approved new norms to restrict associations between its regulated entities and unregistered individuals.

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Finfluencers often work on a commission-based model, which can lead to biased or misleading advice. The new regulations aim to prevent such individuals from influencing investors with inappropriate claims. Sebi-regulated persons and their agents will not engage in any transactions involving money or client referrals with unregistered individuals who provide financial advice or make performance claims.

Regulating Financial Influencers

In recent years, finfluencers have significantly impacted their followers' financial decisions. Sebi's regulatory framework aims to make these influencers accountable for their advice. By doing so, it hopes to protect investors from potential risks associated with unregulated advice.

The regulator has also decided to create a closed ecosystem for fee collection by Sebi-registered Investment Advisers (IAs) and Research Analysts (RAs). This system will ensure that payments from investors reach only registered IAs and RAs, helping investors avoid unregistered entities.

Closed Ecosystem for Fee Collection

Sebi's board approved a proposal to facilitate an optional mechanism for fee collection by registered IAs and RAs. This closed ecosystem will give investors confidence that they are dealing with registered professionals. It will also help them identify and avoid unregistered entities.

The mechanism aims to build trust in the ecosystem by ensuring that only registered IAs and RAs can access it. This recognition will help investors differentiate between registered and unregistered entities acting as IAs and RAs.

Sebi stated that the mechanism has been kept optional based on public consultations. This approach allows flexibility while still providing a secure environment for investors to interact with registered professionals.

This regulatory move by Sebi is expected to enhance the accountability of finfluencers and protect investors from potential risks associated with unregulated advice. By creating a closed ecosystem for fee collection, Sebi aims to build trust and ensure that investors are dealing with registered professionals.