Mumbai, July 20: In its efforts to crack down on unsolicited stock recommendations and advisors, the Securities and Exchange Board of India (Sebi) has issued warning letters to around 20 unauthorised investment advisors since May.
The market regulator’s actions come at a time when it is trying to draw sharp lines between registered advisors and those giving stock recommendations without any authorisation.
Sebi is doing so by restricting associations with unregistered advisors and opening a new fee-collection mechanism for advisors through exchanges.
The entities against whom warnings have been issued were operating through Instagram handles, other social media platforms, YouTube, Web sites, and other means.
Viewing these activities as ‘very serious’ violations, the regulator has called for strict action if they are found to be indulging in such recommendations without registering.
‘If in future, you are found to be involved in violation of any provisions/Sections of Sebi Act, 1992, Sebi Regulations, Rules and Circulars made thereunder, appropriate action may be initiated against you,’ the warning letters note.
Business Standard has seen the warning letters.
Market regulations require registration as a research analyst (RA) or a registered investment advisor (RIA) to give stock recommendations or finance and investment-related advice.
The regulator’s mandate restraining regulated entities like mutual funds, stock brokers, and other intermediaries from associating with finfluencers who do not come under the Sebi ambit will impact the earnings of finfluencers through sponsorships, tie-ups, or referral links, as these may dry up due to the restrictions.
Sebi has also introduced a new mechanism for paying fees to those authorised to give stock recommendations and investment advice through platforms managed by stock exchanges.
BSE Administration and Supervision (BASL), which currently functions as a monitoring body for RIAs, will be tasked with the fee collection framework.
At the last board meeting held on June 27, Sebi Chairperson Madhabi Puri Buch stated that this step is to build trust among investors so that they subscribe to only recognised advisors.
However, the framework is optional for RIAs and RAs in the initial phase.
To restrain finfluencers from giving stock recommendations under the guise of investor education, Sebi specified that only those digital platforms will be given exemption or will be allowed to associate with regulated entities that have a mechanism for ‘preventive as well as curative action’.
“Preventive actions include verifying that only registered and authorised advisors can provide financial advice and continuously monitoring content to prevent unauthorised advice,” said Siddharth Mody, partner at J Sagar Associates.
“Curative actions involve swiftly removing misleading advice, imposing penalties on violators, and rectifying any misinformation by issuing corrections to affected users,” added Mody.
Finfluencers engaged exclusively in investor education can continue their activities as long as they do not provide specific investment advice or make performance claims, said legal experts.
“We’ve already started taking steps towards becoming a fintech firm. So as in education, we are not an advisor — because advice can be given if I’m giving very specific one-on-one consultation,” said Sharan Hegde, influencer and co-founder of 1% Club.
“We do that in our sister company, which is Sebi-regulated. In fact, one of our sister companies has obtained a Sebi licence, making it a Sebi-registered advisory firm,” Hegde added.
Industry players believe that Sebi’s approach may lead to more such shifts to registration.
As of June, over 60 applications for RA licences were in the approval process while around five were awaiting approval for RIA registration.
The market watchdog has previously taken action against those finfluencers who were found to be involved in pump-and-dump schemes or stock price manipulation through YouTube videos or Telegram channels.
Last year, the self-regulatory body, Advertising Standards Council of India, had asked finfluencers to follow advertising guidelines for such referral links or affiliate links for brokerages.
It had also urged them to disclose their qualifications and registration details upfront and prominently, specifically their Sebi-registered numbers.
