Credibility Without Duty: How SEBI Licenses the Finfluencer but Leaves the Follower Unprotected

[Aditya is a student at National Law School of India University.]

The central problem in corporate law is that investors cannot always keep a check on what managers and directors are doing with their money. The problem becomes even bigger when public money is involved. Ordinary investors depend on intermediaries, or gatekeepers, for quality control between the company and the investor. Licensing and registration are therefore important tools of corporate regulation, performing the diligence that individual investors cannot.

Financial influencers (finfluencers) now shape where people invest their money, so the Securities and Exchange Board of India (SEBI) has started regulating and licensing them. The money involved is public money: household savings routed into the equity of listed companies. SEBI has recorded that individual traders lost INR 1,05,603 crore in the equity derivatives segment in FY 2024–25. Regulation 16A of the Securities and Exchange Board of India (Intermediaries) Regulations 2008 (Intermediaries Regulations) makes brokers and other regulated entities answerable for whom they associate with. This protects investors even though they may not be direct clients of the intermediary.

The question is not whether finfluencers should be regulated; since December 2024, they are. The question is which of SEBI's two licensing regimes was chosen, and whether the protection inside it reaches the people carrying the risk. It does not. What reaches the follower is a registration number, which transfers credibility without transferring duty.

Two Regimes, Two Protections

An investment adviser (IA) gives advice to specific clients, so he must understand the profile of his client. Under Regulations 16 and 17 of the Securities and Exchange Board of India (Investment Advisers) Regulations 2013 (IA Regulations), the IA must look at the client's risk-taking ability, investment horizon and existing investments. A research analyst (RA) gives research to a large, unknown audience, so he cannot know everyone's personal situation and is not required to give personalised advice. The Securities and Exchange Board of India (Research Analysts) Regulations 2014 (RA Regulations) regulate the speaker instead: certification, disclosure of conflicts, and a research report supporting the service.

Neither regime is defective. The IA gives personalized advice, while the RA caters to thousands, even lakhs, of investors and cannot know each person's financial situation. The problem arises when a finfluencer reaches a huge audience but is treated like an RA. His advice can seriously affect lakhs of people, but because he is classified under a regime without a suitability requirement, he does not have to check whether that advice is appropriate for them.

Which Door SEBI Opened

In December 2024, SEBI amended the RA Regulations so that finfluencers can no longer escape by saying, "my viewers pay me nothing, so I owe nothing". An RA is now anyone providing research services for consideration, and that can include money earned through advertisements, sponsorships or affiliate links. Research services now cover model portfolios, stop-loss targets and trading calls, and a trading call is any intraday or non-delivery recommendation, or any recommendation that is not personalized or investor-specific. The companion amendment to the IA Regulations removed trading calls from investment advice altogether.

But SEBI maintained the distinction between personal and general advice. An IA who gives personalized advice must make sure that it matches the person's situation. If the advice is general, the speaker falls within the RA regime and does not have to check each viewer's personal circumstances. So SEBI did not ban finfluencers; it moved them into the RA category instead of the stricter IA category.

The Client Boundary

The RA regime is not empty. It provides protections such as know-your-client (KYC) checks, written agreements, consent, limits on fees, and keeping research separate from selling and distribution. But these protections are mainly for people who actually pay the analyst. A finfluencer's ordinary follower usually pays nothing and has no agreement with the finfluencer.

There is one important exception. Regulation 20(4) requires a research report to back the service; because this requirement attaches to the service rather than the client, it covers a public trading call. But it governs the quality of the analyst's reasoning, not the position of his audience. A report can show that a call was reasoned and still say nothing about whether it assumed capital the viewer lacks. It answers whether the analyst did his work, not who the work was for.

So if a finfluencer says, "Invest INR 10 lakh in XYZ", SEBI can check the reasoning behind the call, but the finfluencer is not obliged to confirm whether his viewers have INR 10 lakh to invest or can afford to lose money.

This is where the "client boundary" kicks in: a free follower is not a client, so these protections generally do not apply, even if he follows the advice and loses money.

Do the Intermediaries Regulations Catch Him?

Partly. The finfluencer himself is generally not treated as an intermediary. The Intermediaries Regulations govern persons registered under Section 12 of the Securities and Exchange Board of India Act 1992 (SEBI Act), and reach him only if he registers as an RA. Regulation 16A bars regulated persons and their agents from associating with anyone giving unregistered advice or making performance claims, and Regulation 16B lets SEBI proceed against the regulated entity. So this duty runs mainly between SEBI and the broker; it is not a direct protection given to the viewer.¹

The problem is that registration can become a "commercial passport." Once a finfluencer is associated with a registered analyst, brokers may be willing to work with or pay him. This created situations where some finfluencers rented an analyst's registration number and shared the profits.² In effect, they used someone else's regulatory number without necessarily taking on the responsibilities it was meant to represent.

The Avadhut Sathe Case

The 22 January 2026 ruling of the Securities Appellate Tribunal (SAT) in Avadhut Sathe Trading Academy Private Limited v. SEBI (Sathe) shows both the power and the weakness of SEBI's rules. The academy collected about INR 601 crore from over 3.37 lakh investors. SEBI attributed INR 546 crore to 8 programmes it treated as unregistered advisory and research activity. SAT found a prima facie violation of both the IA and RA Regulations, because the academy gave stop-loss levels, price targets and trading recommendations through live sessions and paid WhatsApp groups, and posted testimonials after an administrative warning.

What made the conduct actionable was the absence of registration. Had the academy obtained an RA licence, giving the same recommendations to the same 3.37 lakh people might have been allowed, because the RA Regulations do not require the analyst to ensure that advice is suitable for each viewer. Also, when SAT ordered money to be secured or disgorged, it went to SEBI, not directly back to the individual investors.³ So SEBI can punish the unregistered person, but the regulatory system may still not directly protect or compensate the lakhs of people who followed the advice.

The Case for SEBI

SEBI is certainly not toothless. The Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003 and Section 12A of the SEBI Act remain available, Regulation 16A polices the ecosystem, and Sathe shows enforcement biting. But these measures usually work after something has gone wrong. In Sathe, action came only after INR 601 crore had already been collected. Enforcement is occasional and reactive; registration is preventive and ongoing.

Some might also argue that restricting public trading calls violates the freedom of speech, as commercial speech is protected post Tata Press Limited v. Mahanagar Telephone Nigam Limited. The answer runs through proportionality. SEBI's restriction is narrow: it covers risky recommendations made to a large audience, but still allows financial education, delivery-based stock views and paid research. SEBI has already tried softer measures, such as disclosures and the warning that 9 out of 10 traders lose money, but losses still increased by 41%. The argument, therefore, is that a stronger restriction is justified because the softer measures did not work.

What Should Follow

Tamra Manfredo is right that mass communication cannot carry individual tailoring. But finfluencers can still strongly influence viewers, because regular followers may develop an illusion of friendship or trust with the creator and therefore act more readily on his recommendations. The duties should be smaller, but owed to the audience. Finfluencers must clearly state who a recommendation is not suitable for, use a standard risk warning, and restrict derivative calls made to the general public. Of these, restricting derivative calls is the most effective, because it does not depend on viewers reading or understanding a warning. This matters because herding, overconfidence and engagement-driven algorithms can make disclosures ineffective.⁴

A 2026 CFA Institute review found that the share of SEBI-registered finfluencers rose from 2% to 6%, but stock recommendations remained high and 37.5% failed to disclose conflicts. Registration increased; behaviour did not improve. Until some duty runs to the audience, registration will keep transferring credibility without transferring duty.

Notes

¹ Khatri (2025) 12 RGNUL Financial and Mercantile Law Review 139, 153.

² Roy and Mangalam (2024) 10 NLS Business Law Review 92, 105.

³ Khatri (n 1) 154.

⁴ Vihan and Almas (2026) 4 LawFoyer International Journal of Doctrinal Legal Research 629, 648.