The Reserve Bank of India (RBI) on Monday tightened norms governing the advertising, marketing and sale of financial products and services, in a move aimed at curbing mis-selling and holding regulated entities accountable across all distribution channels, including social media influencers and digital marketing intermediaries. The revised directions, which will come into force from January 1, 2027, adopt a "principle-based and channel-agnostic approach," according to a PTI report.
Key Provisions of the Revised Directions
The central bank clarified that while payment of incentives to regulated entities' (REs) employees by third parties has been prohibited, the directions do not prohibit payment of incentives by REs to their employees. The objective, the RBI stated, is to ensure incentive structures do not encourage aggressive sales practices or lead to the mis-selling of products and services.
The directions place overall responsibility on the RE for all advertising, marketing and sale of financial products undertaken directly or through agents or outsourced arrangements. The RBI said influencers, affiliates, Loan Service Providers (LSPs) and other similar digital marketing intermediaries engaged for product promotion or customer acquisition would fall within the broader category of Direct Selling Agents (DSAs) and Direct Marketing Agents (DMAs).
Stakeholder Feedback and Final Norms
The final norms follow draft directions issued in February that proposed comprehensive guidelines for the advertising, marketing and sale of financial products and services, including third-party offerings, by banks and non-banking financial companies (NBFCs). After reviewing stakeholder feedback, the central bank issued the amended directions on Monday.
Some stakeholders had sought clarity on whether the directions would apply to social media influencers engaged by regulated entities and LSPs involved in customer acquisition activities. "The definition has been suitably modified to provide clarity in this regard," the RBI said.
Implications for Banks and NBFCs
The revised framework significantly expands the scope of covered intermediaries. Any digital marketing intermediary involved in product promotion or customer acquisition is now classified as a DSA or DMA, bringing them under the regulatory umbrella. This includes social media influencers, affiliates, and LSPs.
| Provision | Description |
|---|---|
| Incentives by third parties | Prohibited for RE employees |
| Incentives by REs to employees | Not prohibited |
| Responsibility | RE responsible for all advertising, marketing, and sale activities |
| Coverage | Includes DSAs, DMAs, affiliates, LSPs, social media influencers, and digital marketing intermediaries |
| Effective date | January 1, 2027 |
"The directions adopt a principle-based and channel-agnostic approach, placing overall responsibility on the RE for all advertising, marketing and sale of financial products undertaken directly or through agents or outsourced arrangements." — RBI
The RBI clarified that the objective is to ensure incentive structures do not encourage aggressive sales practices or lead to the mis-selling of products and services. Banks and NBFCs will need to review their existing incentive frameworks, third-party agreements, and marketing channels to ensure compliance by the January 2027 deadline. The inclusion of digital marketing intermediaries under the DSA/DMA classification may require entities to register new partners and implement additional oversight mechanisms.
For finance executives and treasury professionals, the tightening of mis-selling norms represents a regulatory shift that could affect the cost and structure of distribution for financial products. While consumer lending products sold through digital channels are most directly impacted, the principle-based approach means any financial product marketed by regulated entities falls within scope. The effective date of January 1, 2027 provides a transition period for compliance, but the final norms largely reflect the draft issued in February, allowing early preparation.
The RBI's move underscores its focus on retail customer protection, and the channel-agnostic nature of the directions ensures that new digital sales channels receive the same regulatory scrutiny as traditional branches. For banks and NBFCs, this means that partnerships with fintech firms, social media influencers, and other digital acquirers must be carefully managed to avoid mis-selling risks.
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