The Securities and Exchange Board of India (SEBI) has issued a new circular mandating that all SEBI-regulated entities, including recognized stock exchanges, clearing corporations, and depositories, sever ties with unregistered financial advisors offering securities-related recommendations or claims. Entities have been given a three-month period to comply and end any existing contracts with unregistered advisors. However, associations with entities engaged in investor education or “specified digital platforms” are exempted from this directive.

Key Details and Timelines:

1. End Ties with Unregistered Advisors:
   SEBI-regulated entities must cease partnerships with unregistered financial advisors within three months, ensuring that only registered advisors provide securities recommendations.
2. Exemptions for Specified Digital Platforms:
   Collaborations through “specified digital platforms” and investor education initiatives are excluded from this directive. SEBI has issued a consultation paper inviting comments to define these platforms and the necessary qualifications for recognition.
3. Preventive and Curative Measures for Digital Platforms:
   The circular outlines preventive measures for digital platforms seeking SEBI recognition, including:
   • Policies on collaboration, transparency, and accountability
   • Usage of AI/ML tools to detect and review securities-related content
   • Policies on impersonation and violation prevention
   • Verified label or badge system for authenticity

Curative measures to counter lapses in preventive actions include:

1. • Content-blocking and link disabling options
   • Blacklisting policies with specified turnaround times
   • Escalation mechanisms for unauthorized content
2. Recognition Process for Digital Platforms:
   Digital platforms must apply within three months to seek SEBI recognition as Specified Digital Platforms (SDPs) and demonstrate compliance with SEBI’s preventive and curative guidelines. A defined dispute resolution process is included in the circular, aimed at promoting transparency.
3. Public Comment Period:
   SEBI is seeking public comments on the consultation paper until November 12, 2024. Stakeholders can share feedback via the provided link or email to consultationMIRSD@sebi.gov.in.

SEBI’s Proactive Steps to Curb Misinformation:
SEBI has been actively tackling the issue of misleading financial advice by unregistered individuals. In recent years, SEBI has updated its regulations on investment advisers, with the SEBI (Investment Advisers) Regulations, 2013 seeing amendments in 2023 and compliance extensions to 2025. Further, AI disclosure requirements were introduced for investment advisers and research analysts earlier this year to ensure transparency.

Conclusion:
With this latest directive, SEBI aims to safeguard investors from unverified investment claims while encouraging greater transparency and accountability within the financial advisory ecosystem.