They said that the regulation can be interpreted to mean that the restriction is only on putting affiliate links on their social media platforms and not for branded marketing activities.
The Securities and Exchange Board of India (Sebi) on 22 October ordered regulated entities, including recognized stock exchanges, clearing corporations, and depositories, to terminate any existing contracts with unregistered financial advisers within three months, in order to protect investors and ensure market integrity.
Ambiguity in the rules
Sharan Hegde, co-founder of 1% Club, a financial awareness and education platform, told Mint that Sebi’s regulation that barred regulated entities from associating with unregistered content creators who offer advice or recommendations or make claims on the performance of any security, has wide interpretations.
“There are technical jargons. It says ‘finfluencers cannot do conversions but can do ‘branding’. This means the influencers are not asking investors to buy, but are just educating broadly,” Hegde said.
He said that while the regulator has asked regulated entities to dissociate from finfluencers for their customer acquisition or selling promotions, it was not clear whether finfluencers could have a podcast with a particular company head, to not directly promote their products but to give general financial awareness to the public. “This comes under the bracket of branded marketing activities which ideally cannot be restricted since it would violate freedom of speech”, he said.
He also interpreted the regulation to mean that branding or promotion of consumer products from the banking, financial services, and insurance sector, which is not regulated by Sebi, will be allowed despite the regulation.
To be clear, Sebi’s regulation reads as follows: “No person regulated by the Board shall have any direct or indirect association with another person who provides advice or any recommendation directly or indirectly in respect of security or securities or makes any claim, of returns or performance expressly or impliedly, in respect of or related to a security or securities, unless the person is registered with or otherwise permitted by the Board.”
The regulation also specified that the expression “association” meant transaction involving money or money’s worth; referral of a client; interaction of information technology systems; any other association of a similar nature or character.
Some legal experts interpreting the provision agreed that the wording of the regulation was indeed ambigious and lacked enforcing clarity.
“Making regulations and enforcement of law is a tricky business,” said Chirag M. Shah, a senior securities lawyer. “So, if you are saying unregistered advisers cannot speak on stocks, say it in as many words. Do not beat around the bush.”
He emphasized that such restricting regulations required method and means to deal with violations, which if a regulator lacked, meant they could not enforce the regulation effectively.
“If you want to make unregistered influencers accountable to Sebi, it is important to crack a whip on all unregistered ones in a way that it sends a clear message,” the lawyer said. He elaborated that a registered intermediary who had a reputation to uphold or wanted to avoid protracted disputes with regulators typically made the necessary adjustments. “In contrast, others continue to openly disregard the law, both in its wording and intent”, he said.
However, other experts maintained that both the provisions and Sebi’s intent were clear.
Pranjal Kamra, influencer and founder of fintech startup Finology Ventures, emphasized Sebi’s move was to cut off revenue streams of unregulated investment advisers.
“’Expressing an opinion is a fundamental right, but if you want to make it a profession, you need to be licensed or you cannot be compensated for it’ is a stand that the regulator has taken, as I understand and I agree with it” he said.
He added that the regulation makes a fair distinction between finfluencers who educate and finfluencers who provided regulated advice and unregulated tipsters. When asked how influencers will earn, Kamra said they either must register themselves with Sebi or stick to educational content only.
Influencers now have clarity on what is absolutely restricted, which is tips on derivatives trading, screenshots of company profits, intraday trading charges and cryptocurrencies, Kamra explained.
Rashi Dhir, senior partner at DMD Advocates, said the regulations were quite clear. “They can promote companies and products but not recommend or advise on securities. They can impart education on the securities industry or on mechanism for trading in securities so long as they do not specifically directly or indirectly recommend or advice on a security or trading in it,” Dhir said.
Some experts also believed that the circular’s ambiguity was intended to give it the widest possible interpretation.
The 22 October circular is more clarificatory in nature than anything else and Sebi’s decision of 27 June was widely worded and left ambiguous for a reason, said Pritha Jha, partner at Pioneer Legal. “The idea is not to be specific to cast the widest net possible. A plain reading will tell you that the intent behind the circular is to stop financial influencers from having any financial association (directly, indirectly, cash or kind) with a regulated entity, unless it has been permitted by Sebi. If a finfluencer therefore is branding securities, that is enough to violate this provision”, Jha said.
