{"id":48742,"date":"2025-05-23T14:18:21","date_gmt":"2025-05-23T14:18:21","guid":{"rendered":"https:\/\/my.legal500.com\/developments\/?post_type=legal_developments&p=48742"},"modified":"2025-05-23T14:27:57","modified_gmt":"2025-05-23T14:27:57","slug":"securities-law-update-sebi-imposes-restrictions-on-intermediaries-and-finfluencers","status":"publish","type":"legal_developments","link":"https:\/\/my.legal500.com\/developments\/thought-leadership\/securities-law-update-sebi-imposes-restrictions-on-intermediaries-and-finfluencers\/","title":{"rendered":"SECURITIES LAW UPDATE | SEBI IMPOSES RESTRICTIONS ON INTERMEDIARIES AND FINFLUENCERS"},"content":{"rendered":"

Overview:<\/u><\/strong><\/p>\n

A recent Circular dated 29 January 2025 <\/u>issued by the Securities and Exchange Board of India\u00a0 (\u2018SEBI\u2019) provides imperative clarifications regarding the association of persons regulated by\u00a0 SEBI, market infrastructure institutions (MIIs), and their agents with individuals or entities\u00a0 engaged in prohibited activities. <\/strong><\/p>\n

<\/p>\n

This circular serves as a follow-up to the earlier circular dated\u00a0 22 October 2024 (\u2018October Circular\u2019)<\/strong>. Essentially, the present circular marks a significant\u00a0 regulatory shift aimed at curbing the activities of unregistered financial influencers, commonly\u00a0 referred to as “finfluencers”. <\/strong>This directive prohibits the influencers from using live stock\u00a0 prices in their educational content, requiring them in the alternative, to refer to stock prices\u00a0 that are at least three months old. This change is expected to have profound implications for\u00a0 the finfluencer industry.<\/p>\n

Key highlights of the Circular:<\/u><\/strong><\/p>\n

    \n
  1. Regulatory Background<\/u><\/strong>:<\/u><\/li>\n<\/ol>\n

    The circular references amendments to various regulations, including the Securities\u00a0 and Exchange Board of India (Intermediaries) Regulations, 2008, and others, which\u00a0 were published on August 29, 2024. These amendments restrict associations with\u00a0 individuals or entities that provide unregistered advice or make unpermitted claims\u00a0 regarding securities.<\/p>\n

      \n
    1. Prohibited Activities<\/u><\/strong>:<\/u><\/li>\n<\/ol>\n

      The regulations prohibit any direct or indirect association with persons who: a) Provide advice or recommendations related to securities without SEBI registration; b) Make claims regarding returns or performance related to securities without SEBI\u00a0 permission.<\/p>\n

      III. Clarifications Provided<\/u><\/strong>:<\/u><\/p>\n

      The circular includes an annexure containing certain frequently asked questions that\u00a0 clarify the following;<\/p>\n

        \n
      1. a) Definitions of \u2018persons regulated by the Board\u2019 and \u2018agents\u2019<\/li>\n
      2. b) Responsibilities of regulated entities to ensure that associated individuals do not engage in prohibited activities<\/li>\n
      3. c) The distinction between investor education and prohibited advisory roles.<\/li>\n
      4. Compliance Requirements:<\/u> <\/strong><\/li>\n<\/ol>\n

        Regulated entities must ensure compliance with these provisions and are advised to\u00a0 terminate existing contracts with individuals engaged in prohibited activities within\u00a0 three months from the October 2024 circular’s issuance. This compliance is crucial for\u00a0 maintaining regulatory standards and protecting investor interests.<\/p>\n

          \n
        1. Investor Education allowed with certain restrictions: <\/u><\/strong><\/li>\n<\/ol>\n

          While genuine investor education is still permitted, it must strictly adhere to the new\u00a0 guidelines. This includes avoiding any performance claims or investment\u00a0 recommendations unless the educator is a SEBI-registered entity.<\/p>\n

            \n
          1. Consequences for violations:<\/u> <\/strong><\/li>\n<\/ol>\n

            The circular outlines potential actions SEBI may take against violations, including\u00a0 penalties, suspension, or cancellation of registrations. It emphasizes the importance\u00a0 of adhering to these regulations to avoid severe repercussions.<\/p>\n

            Expected Outcomes: <\/u><\/strong><\/p>\n

              \n
            1. Reduction in misleading practices: <\/strong><\/li>\n<\/ol>\n

              By closing this loophole, SEBI aims to reduce misleading investment claims that have\u00a0 proliferated in the finfluencers space, thereby enhancing investor protection and\u00a0 market integrity.<\/p>\n

                \n
              1. Challenges for Social Media Influencers: <\/strong><\/li>\n<\/ol>\n

                Many influencers who relied on live market data for their content may find their\u00a0 business models unsustainable. The shift could lead to a significant restructuring\u00a0 within this sector as they adapt to the new regulations or face potential subscriber\u00a0 losses.<\/p>\n

                III. Stringent Enforcement: <\/strong><\/p>\n

                SEBI’s recent action is part of a larger initiative to strengthen compliance within the\u00a0 financial system. This could result in tougher measures against deceptive stock market\u00a0 content and promote the idea that investors should consult only registered\u00a0 professionals for advice.<\/p>\n

                MHCO Comment: <\/u><\/strong><\/p>\n

                This circular ensures that finfluencers are restricted from selling stock tips on various social\u00a0 media platforms. This regulatory change represents a critical step in addressing the challenges\u00a0 posed by unregulated financial advice in India, aiming for a more transparent and safer\u00a0 investment environment for retail investors.<\/p>\n

                Authored By: Mr Bhushan Shah, Partner,\u00a0 Ms. Shreya Dalal, Associate Partner and Mr Gaurav Edekar, Associate.<\/em><\/p>\n

                This article was released on 3 February 2025.<\/p>\n

                The views expressed in this update are personal and should not be construed as any legal\u00a0 advice. Please contact us for any assistance.<\/em><\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-48742","legal_developments","type-legal_developments","status-publish","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments\/48742","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments"}],"about":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/types\/legal_developments"}],"wp:attachment":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/media?parent=48742"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}