SEBI issues three-month ultimatum for regulated entities to cut off finfluencers

The Securities and Exchange Board of India (SEBI) has officially tightened its grip on India’s financial influencer, or "finfluencer," ecosystem, issuing a directive for all regulated entities, including stock exchanges, clearing corporations, and depositories, to cease any engagement with unregistered financial advisors within the next three months. This move is aimed at minimising the potential risks posed by unregulated finfluencers offering stock market advice without SEBI’s oversight, a trend that has raised red flags due to misleading claims and insufficient transparency.

In its recent circular, SEBI specified that any entity it regulates, as well as their agents, must terminate contracts with individuals providing stock-related advice or making implicit or explicit claims of investment returns. Such activities, often coupled with undisclosed financial ties to SEBI-registered intermediaries, have led finfluencers to influence large follower bases without the accountability that proper registration demands.

The need for tighter regulation around finfluencers has been simmering. In June 2024, SEBI first approved a set of guidelines aimed at bringing unregistered financial influencers under its ambit. However, many finfluencers have steered clear of compliance due to the perceived constraints, opting instead to operate through indirect relationships with SEBI-registered entities. This loophole has allowed them to continue providing unregulated advice and earning revenue, potentially skewing their followers' financial decisions based on compensation rather than expertise.

“Persons regulated by SEBI or their agents should not maintain any association – financial transactions, technology interactions, or client referrals – with individuals offering unregulated advice on securities,” the circular emphasised, barring any collaboration without explicit SEBI approval. For SEBI-regulated entities, this directive also brings the responsibility of monitoring and ensuring compliance with these new restrictions across all of their associated agents.

However, SEBI has clarified that these limitations will not apply to entities engaged solely in investor education that refrain from making any claims about returns or performance. Similarly, specified digital platforms with robust preventive and curative mechanisms approved by SEBI may be exempted, allowing them to educate investors without risk of inadvertently promoting unauthorized advice.

The directive comes at a time when the popularity of finfluencers in India is soaring, with top names like Sharan Hegde (2.6M followers), Dinesh Kirola (879K followers), and Ketan Mali (572K followers) capturing the attention of millions. SEBI’s decisive action highlights the importance of regulated, transparent financial advice in an industry where one wrong step could lead to significant financial losses for investors.