The Market Regulator Securities and Exchange Board of India (SEBI) has issued a circular and issued a clarification regarding provisions related to the involvement of regulated units with those involved in restricted activities.
We are telling you about this in detail here
What is the recent circular?
The recently released circular explained in detail that regulated units (RES), such as stock exchange and brokerage firms, have not been asked to join people involved in two restricted activities. These two restricted activities have to directly or indirectly to give investment advice and claim performance or returns without registration.
But did the regulator not ban the ban on this engagement earlier?
Yes. These regulations have been effective since October 29, 2024. Regulated units (RES) and their agents were advised through circular on 22 October 2024 to eliminate the existing contract with those involved in these two banned activities. However, the market players did not have clarity about some points, such as what is the meaning of engagement, does the clients refrands also contain.
Things have been cleaned at three points in the recent circular.
What does connectivity mean?
According to the circular, ‘connectivity’ will be considered when
(a) A transaction that includes something of money or its value,
(b) A client referral,
(c) Connection of Information Technology System
(d) Any other similar connection
Can such people refer clients without monetary benefits?
No. According to the circular, ‘Client information sharing is also like referring the client. Therefore, making any kind of payment, getting payment or sharing client information with a person will be considered as ‘engagement’ and is not allowed. Therefore, client information is also not allowed from such people.
Can regulated units use such people to promote their brands?
No. According to the circular, regulated units may use other person for their promotional or marketing activities, provided the person is not involved in these restricted activities. For example, they cannot provide advertisements on the YouTube channel of an influencer that provides investment advice without registration.
If such a person is promoting other regulated financial products?
Not even in such a situation. If this person is involved in any restricted activities, then SEBI regulations units cannot be associated with such a person. For example, if such a person is promoting an insurance product that comes under the purview of Insurance Regulatory and Development Authority of India (IRDAI), then the person will have the freedom to promote regulated products by SEBI.