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SEBI has directed the market intermediaries which include mutual fund companies and their distributors and registered investment advisors not to engage with a person or entity who makes claims about returns (like finfluencers).
SEBI defines such a person/entity as those who provide unsolicited advice or recommendation or makes any implicit or explicit claim of returns and performance with respect to security market products.
The market regulator said that market intermediaries cannot pay any monetary or non-monetary compensation to such individuals, directly or indirectly.
However, SEBI clarified that such a restriction will not be applicable for persons who are engaged in investor education and do not directly or indirectly provide advice.
Also, the market intermediaries can be associated with a specified digital platform, which has a mechanism in place to take preventive action against such finfluencers and ensure that their platform is not used by persons offering advice, recommendation or claim of return or performance. SEBI will define the specified digital platform in a separate circular.
Further, the market regulator directed fund houses and their distributors to review their existing contracts and terminate it if it doesn’t comply with the regulations within three months from now.
SEBI said that it will be the responsibility of the person regulated by the Board to ensure that the person with whom it or its agent is associated does not indulge in such prohibited activities
