SEBI Restricts Mediators From Sharing Client Info With Entities Offering Unofficial Advice

The move is to protect the investors and regulate the market to comply with the new rules

The Securities and Exchange Board of India (SEBI) has explained that registered intermediaries are not allowed to make or receive payments or share client information with anyone providing unauthorized advice or making unapproved return claims.

In its frequently asked questions (FAQs), SEBI marked, "Sharing client information is of similar nature as of 'referral of a client'. Hence, making any payment or receiving payment or sharing any client information from or with any person shall amount to ‘association’ under these regulations, and is not permitted.” It explained that ‘association’ included any transaction, referring a client, sharing information between systems, or a similar activity.

However, persons regulated by SEBI and their agents could associate with others for branding, marketing, or promotional activities, if they avoided the prohibited activities and ensured protection and compliance with new regulations.

SEBI published updates to the Securities and Exchange Board of India (Intermediaries) Regulations, 2024, and related rules on 29 August 2024.

This means, that those regulated by SEBI, including stock exchanges, clearing corporations, depositories and their agents, must not have any direct or indirect links with individuals or entities advising or making recommendations on securities without the regulator’s approval. Unless approved, they cannot make claims of guaranteed returns or performance related to securities.