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Consultation Paper on Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers)

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SEBI recently released a consultation paper to restrict the association of SEBI registered intermediaries / regulated entities with unregistered ‘finfluencers’. SEBI noted that unregistered entities / finfluencers may be effectively enticing their followers through various social media platforms to purchase products, services, or securities in return for undisclosed compensation from platforms or producers. The consultation paper proposes to curb the flow of such compensation.

‘Finfluencers’ are persons who provide information and / or advice on various financial topics through social / digital media platforms / channels such as YouTube, Telegram Messenger, WhatsApp, LinkedIn, Twitter, and have the ability to influence the financial decisions of their followers. Thus, the activities of finfluencers may deal in areas regulated by financial sector regulators such as SEBI, Reserve Bank of India (RBI), Pension Fund Regulatory and Development Authority (PFRDA) and Insurance Regulatory and Development Authority of India. The consultation paper noted that such unregistered finfluencers may not have requisite qualifications or expertise on the subject. Further, they are not formally subject to a financial sector regulator’s code of conduct.

SEBI has now proposed to disrupt the revenue model for such finfluencers, besides undertaking enforcement action against unregistered finfluencers who breach SEBI regulations, so that the perverse incentives in the ecosystem reduce. Further, no SEBI registered intermediaries / regulated entities or their agents / representatives shall, directly or indirectly, have any association / relationship in any form, whether monetary or non-monetary, for any promotion or advertisement of their services / products, with any unregistered entities (including finfluencers). SEBI registered intermediaries / regulated entities  shall  not  pay  any  trailing  commission based on the number of referrals as referral fee.

The market regulator proposes that SEBI registered intermediaries shall take active measures to dissociate themselves from any unregistered entity using their name, product or service, including . bringing it to the notice of the enforcement agency.

A copy of the consultation paper is enclosed below.

Readers are welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com

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