Madhabi Puri Buch, the chairperson of the Securities and Exchange Board of India, issued a stern warning against unregulated financial advice, particularly targeting financial influencers or “finfluencers” offering stock tips.
The warning comes amid growing concerns about finfluencers who have acquired mutual fund distribution licences. Sebi treats distributors as asset management company employees.
“There is a misunderstanding that mutual fund distributors (MFDs) are not regulated,” Buch said. She highlighted that MFDs are indeed regulated and function as agents of mutual funds, similar to employees.
“It is factually incorrect to say they are unregulated. An MFD is an agent of a mutual fund, just like an employee,” she told Mint.
Buch stressed that mutual funds are responsible and liable for the actions of their agents.
“If the agent does something which a mutual fund is not committed to do, the mutual fund is responsible and is liable, and we will enforce our regulations against them,” she explained.
Sebi has observed instances of mis-selling and misleading advertisements by MFDs, leading to actions taken against the asset management companies.
Equal Responsibility for AMCs and Distributors
SEBI does not distinguish between distributors and AMC employees regarding accountability. “We do not recognize the distributor as something different than an employee of the AMC,” Buch stated. She made it clear that if distributors engage in wrongful activities, the AMC will be held liable. “Any ad that the AMC cannot issue, the distributor cannot issue as well. If we get our hands on it, which we sometimes do, we do take action,” she added.
Legal action against unregulated advice
Buch further explained that any incidental advice provided by distributors, AMC employees, or AMCs themselves must be limited to mutual fund-related areas. “They are carrying the registration from the Association of Mutual Funds in India (AMFI) and they are an agent of the mutual fund. They cannot be giving advice on Futures and Options (F&O) trading and claim that ‘I am doing it because I am registered with AMFI as a distributor.’ This is not allowed,” she warned.
Buch’s message was clear: fin-influencers and distributors giving stock tips or advice outside the mutual fund domain is illegal. “If they do it, it is illegal,” she concluded, underlining SEBI’s commitment to maintaining strict regulations and taking necessary actions against violations.
SEBI’s stance underscores the importance of regulated financial advice and the accountability of mutual funds for their agents’ actions, ensuring investor protection in an evolving financial landscape.
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