Cutting Ties with Finfluencers: SEBI Distinguishes Between Education & Advice

On January 29, 2025, the Securities and Exchange Board of India (SEBI) issued FAQs clarifying that persons regulated by the Board, such as stock brokers, portfolio managers, investment advisors, etc., could not have any direct or indirect association with unregistered finfluencers, while also distinguishing between education and advice/recommendation.

The new circular is in line with the provisions contained in SEBI (Intermediaries) (Amendment) Regulations, 2024, the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Fourth Amendment) Regulations, 2024, and SEBI (Depositories and Participants) (Second Amendment) Regulations, 2024, all of which were notified in August 2024. These regulations specify that persons regulated by the Board, market infrastructure institutions (MIIs), and agents of such persons or MIIs should not have any direct or indirect association with another person who:

• provides advice or any recommendation, directly or indirectly, in respect of or related to a security or securities, unless the person is registered with or otherwise permitted by the Board to provide such advice or recommendation; or
• makes any claim, of returns or performance expressly or impliedly, in respect of or related to a security or securities, unless the person has been permitted by the Board to make such a claim.

Here, the term ‘another person’ does not encompass a person engaged solely in investor education, provided that such a person does not indulge in any of the abovementioned prohibited activities.

As per the new FAQs, persons regulated by the Board and their agents may associate with another person who is engaged in investor education, which is evidently not one of the two prohibited activities. Having said that, the persons regulated by the Board must ensure that the person providing education does not engage in any of the two prohibited activities.

SEBI’s circular also distinguishes between education and advice/recommendation. It states that a person engaged solely in education should not be using the market price data from the past three months when discussing or displaying the name of any security including the use of code names of securities in videos, ticker displays, or screen shares indicating the future price, advice or recommendation related to securities. The draft circular released in December of last year also mentioned that if the name of any security or the market price data is used for the purpose of education, such market price data may be used with a lag of at least three months; this portion has not been retained in the finalised version of the circular.

As per the circular, violation of the regulations could result in penalties, suspension of registrations, debarment, etc.