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Sebi mandates Investment advisors to share social media details twice a yr

New Delhi, May 10, 2024 

Regulator says it wants to protect investors from unsolicited, unverified advice on social media 

The Securities and Exchange Board of India (Sebi), the country's capital market regulator, has taken a significant step to improve transparency and protect investors from misleading financial advice circulating on social media. In a new directive, Sebi is mandating investment advisors to disclose details of their social media presence twice a year. This move comes amidst growing concerns about unregistered influencers and even registered advisors misusing social media platforms to provide unauthorized or misleading investment tips.

IAASB needs information on accounts, pages, channels, or other social media platforms used by the advisors. Additionally, Advisors are required to provide detailed information regarding various aspects of their operations. Specifically, they must report details about bank accounts established for receiving advisory fees, disclose their office addresses, share information about their shareholding patterns, and provide information about any advertisements they have issued.

Investment advisors will submit half-yearly reports on September 30 and March 31 of every financial year. Sebi said the move aims to enhance transparency and accountability in the financial advisory sector, ensuring that investors are protected from unsolicited or unverified advice on social media platforms.

Sebi has been monitoring social media platforms where there have been cases of investor interest being compromised. As of October 2023, India had over 1,300 registered investment advisors serving more than 80 million investors.

What made Sebi come up with the guidelines?

Sebi's action stems from a rise in social media influencers promoting stock picks and investment strategies without proper registration. These individuals often lack the qualifications and expertise to provide financial advice, potentially putting unsuspecting investors at risk.

In recent cases, the regulator barred influencers like P R Sundar, Syyed Shujauddin, Ruchit Gupta, and Mohammad Nasiruddin Ansari from trading and ordered them to pay hefty fines.

Here’s what had happened

Mohammad Nasiruddin Ansari, operating under the brand "Baap of Charts" on YouTube, Telegram, and other platforms, offered stock recommendations and collected a hefty Rs 17.2 crore in fees from investors between January 2021 and July 2023. Sebi subsequently barred Ansari from acting as an investment advisor and ordered him to return the collected funds, highlighting the potential financial harm caused by such practices.

Similarly, Sebi had fined YouTuber and options trader PR Sundar Rs 6.5 crore and prohibited him from trading for a year for violating investment adviser norms.

The key reasons behind this new rule are:

— Many social media influencers have been providing stock tips and investment advice without proper registration as investment advisors, putting gullible investors at risk. Sebi wants to crack down on these unregistered entities.

— Some registered investment advisors have been misusing their Sebi registration to provide unsolicited and misleading financial advice on social media. Monitoring their social media activities will help Sebi identify and penalise such errant behaviour.

— Sebi has observed many instances of registered investment advisors making false promises of guaranteed returns, using technical jargon to confuse investors, and sharing misleading testimonials in their social media posts and advertisements. The new rule aims to bring more transparency.

— By mandating disclosure of the bank account where investment advisory fees are received, Sebi can better track the financial activities of these advisors and identify any malpractices.

— Periodic reporting of complaints received and inspections done will enable Sebi to better supervise investment advisors and take prompt action against those violating regulations

In a circular released on May 7, Sebi emphasised the need for investment advisors to “proactively disclose” their social media activities to the supervisory body. This step is part of broader efforts to regulate the financial advice provided on social media, safeguarding investors from potential risks associated with misleading or unauthorised financial guidance. The reporting format requires advisors to provide comprehensive details about their online presence, financial transactions, and business operations, promoting a more transparent and compliant financial advisory environment.

[The Business Standard]

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