Sebi tightens grip on unregistered financial advisors

The Securities and Exchange Board of India (Sebi) has issued a fresh directive tightening restrictions on associations between regulated entities and individuals/firms engaged in unauthorised securities advisory services.

The circular, issued on January 29, 2025, reinforces existing regulations barring registered intermediaries—including stock exchanges, clearing corporations, depositories, mutual funds, and investment advisors—from having direct or indirect ties with unregistered market advisors and so-called 'finfluencers'.

The move is part of an ongoing effort to curb misleading investment claims and ensure compliance within the financial ecosystem.

Additionally, it has clarified that individuals engaged in stock market education must not use live market prices and can only reference stock prices with a three-month lag to prevent implied investment recommendations.

"A person engaged solely in education shall mean that such person is not engaged in any of the two prohibited activities. 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," the circular said.

Under the revised framework, any individual or entity regulated by Sebi is prohibited from associating with persons engaged in two key activities: providing investment advice without proper registration and making unsubstantiated claims about investment returns.

This restriction extends beyond formal partnerships, encompassing transactions involving money or referrals, technology integrations, and marketing arrangements. The regulator has also clarified that any financial intermediary must ensure its agents do not engage with such prohibited entities.

The regulator has also addressed the evolving digital marketing landscape, warning that firms could be held accountable if their branding or lead-generation efforts result in indirect associations with unregistered advisors or finfluencers.

“Advertisements appearing on digital platforms must be carefully managed to prevent any inadvertent connection with entities violating these norms,” Sebi noted.

The amended regulations, in effect since August 29, 2024, provide intermediaries with a three-month window to sever any existing ties with unauthorised advisory firms and finfluencers. Failure to comply may result in penalties, registration suspension, or debarment from market participation.