SEBI Vs Finfluencers: Market Regulator Introduces New Rule To Curb Spread Of Investment Advice From Unregistered Advisories

Market regulator Securities Exchange Board of India (SEBI) has tightened its grip on influencers who dish out investment advice in the garb of investor education. The market regulator issued a circular which prohibits unregistered advisors from using real-time share price data of the preceding three months to speak, talk or display the name of any security.

“Such person should not be using the market price data of the preceding three months to speak/talk/display the name of any security including using any code name of the security in his/her talk/speech, video, ticker, screen share etc. indicating the future price, advice or recommendation related to security or securities,” SEBI said.

SEBI’s Regulation For Registered MIIs

The SEBI also said that registered Market Infrastructure Institutions (MIIs) such as stock exchanges, clearing corporations, depositories and agents of such MIIs should not have any association with ‘persons’ who are engaged in prohibited activities.

The prohibited activities include giving advice related to securities and making claims on the returns or the performance of securities without SEBI’s permission and without duly registering with the SEBI. The SEBI added that the term ‘association’ includes transactions involving money or money’s worth, referral of clients, or any interaction via information technology systems or any other association of similar nature.

“These regulations inter alia provide that persons regulated by the Board, MIIs (stock exchanges, clearing corporations, depositories), and agents of such persons/MIIs shall not have any direct or indirect association with another person who- (i) provides advice or any recommendation, directly or indirectly, in respect of or related to a security or securities, unless the person is registered with or otherwise permitted by the Board to provide such advice or recommendation; or (ii) makes any claim, of returns or performance expressly or impliedly, in respect of or related to a security or securities unless the person has been permitted by the Board to make such a claim,” the SEBI said.

When Did The Regulation Come Into Effect

The SEBI added that these regulations came into effect from August 29, 2024. Additionally, the SEBI also urged regulated entities to end their association with the ‘persons’ engaged in prohibited activities within three months.

“These regulations have come into force with effect from August 29, 2024. Persons regulated by the Board and their agents have been advised through a circular dated October 22, 2024 to terminate their existing contracts, if any, with persons engaged in any of the above mentioned two prohibited activities, directly or indirectly, within three months from the date of issuance of that circular. Hence, these regulations are already in force,” SEBI said.

Who Does The Rule Apply To?

The SEBI said that the rule is applicable to registered entities such as people who are registered with the board under section 12 of the Act, asset management companies of mutual funds registered, investment managers of alternative investment funds or infrastructure investment trusts registered and managers of real estate investment trust.

However, the market regulator clarified that the rule does not include people who are engaged solely in investor education and do not provide advice related to securities or make claims about their performance and returns.

“It has been clarified that the term “another person” shall not include a person who is engaged solely in investor education, provided that such a person does not, directly or indirectly, indulge in any activity as referred to in clauses (i) or (ii) above,” SEBI said.

Further SEBI also said that registered MIIs cannot associate with entities engaged in prohibited activities for branding, marketing and other promotional activities.

“The persons regulated by the Board and their agents are allowed to associate for their branding/marketing/promotional activities with another person provided that such another person is not engaged in any of the above mentioned two prohibited activities, directly or indirectly,” SEBI said.

SEBI’s Penalty For Non-Compliance

The SEBI added that not complying with the regulations may lead to potential actions such as penalty, suspension, cancellation of registration and debarment. “Further, in terms of Regulations 44C of SECC Regulations, SEBI may, in case of violation of any of the provisions of Regulation 44B of SECC Regulations, take such action as it may deem fit including action as provided under regulation 49 of SECC Regulations. Such action may include adjudication or an order under Section 11B of SEBI Act, 1992. Potential actions could include penalty, suspension/cancellation of registration, debarment, etc.” SEBI said.

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