June 27th 2024.
In light of the growing concerns about the potential risks associated with financial influencers or "finfluencers," the Securities and Exchange Board of India (Sebi) has taken a major step in regulating their activities. This decision was made during a board meeting on Thursday, where the need for stricter guidelines was discussed. The main concern was that these unregulated individuals could be influencing investors with false or misleading claims in order to make a profit for themselves.
To address this issue, Sebi has approved new norms that will restrict any associations between its regulated entities and unregistered individuals. This means that any financial transactions, referrals, or sharing of information technology systems between the two parties will no longer be permitted. This move comes at a time when there is a growing awareness about the potential risks posed by these finfluencers, who often operate on a commission-based model.
The new regulations will hold both Sebi-regulated entities and their agents accountable for any advice or recommendations they provide to investors. This will ensure that they are responsible for the accuracy and legitimacy of their claims. In the past few years, finfluencers have had a significant impact on their followers' financial decisions, and with Sebi's regulatory framework, they will now be held to a higher standard.
In addition to regulating finfluencers, Sebi has also taken steps to create a closed ecosystem for fee collection by Sebi-registered Investment Advisers (IAs) and Research Analysts (RAs) from their clients. This will help investors ensure that their payments are only going to registered IAs and RAs, thus protecting them from unregistered entities. This move will also give investors more confidence in the services they receive, as they will know that they are interacting with legitimate and registered professionals.
The mechanism for fee collection will be optional for Sebi-registered IAs and RAs, but it will create a closed ecosystem that will give investors peace of mind. This will also help to differentiate registered professionals from unregistered entities, as only the former will have access to this closed system. By implementing this mechanism, Sebi is not only regulating the activities of IAs and RAs but also giving recognition to their legitimate and trusted services.
In conclusion, Sebi's decision to regulate finfluencers and create a closed ecosystem for fee collection by registered IAs and RAs is a positive step towards protecting investors from potential risks. It will also help to create a more transparent and trustworthy ecosystem for financial advice and services.
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