SEBI Chief’s Warning to Finfluencers! Here’s What She Said….

June 2, 2023 Mutual Fund

The Securities and Exchange Board of India (SEBI), the market regulator, is concerned about the dramatic growth in the number of unregistered investment advisors or ‘financial influencers’ who offer unsolicited financial advice across various social media platforms.

SEBI is now developing regulations to control this expanding community of ‘Finfluencers.’ In my previous article – Investments Recommended by Finfluencers – Can You Rely on Them? I have discussed the need for caution while taking free investing advice from Finfluencers as well as how SEBI is exploring ways to regulate them.

You see, due to a lack of regulatory oversight in the internet and social media world, anybody can give investment advice, which makes the world of Finfluencers muddled, ranging from the unqualified one’s to the extremely experienced ones. However, consumers/investors are left to figure out for themselves which could be a suitable advice for them.

The fundamental goal of the Registered Investment Advisor (RIA) regulation, which was implemented in 2013-14, was to regulate the distribution channel for investment advice. Ten years ago, the majority of financial advice was given in person by brokers or investment advisors. People now often use social media for this type of advice; therefore, if this medium is not regulated in a stringent manner, the goal of RIA regulation will become meaningless.

The SEBI Chairperson, Ms Madhabi Puri Buch, was questioned about SEBI’s stance on the execution of regulatory measures for financial influencers at an event organised by the Association of Mutual Funds in India (AMFI). She gave a cryptic response by saying, ‘Something is cooking.’

[Read: SEBI Chief Draws AMFI’s Attention to Form an Ethical Committee]

The SEBI Chairperson has hinted that discussions about putting regulations in place for Finfluencers are ongoing. The market watchdog is in the midst of framing rules for financial influencers, particularly those who offer suggestions or advice without any SEBI registration. While Ms Buch declined to go into further detail, it is clear that SEBI is working to develop a plan to control the sizable number of unregistered or unregulated investment advisors.

Actions taken by SEBI against unregistered investment advisors

In a recent instance, SEBI settled an ongoing investigation against P R Sundar – the Finfluencer with over a million followers on YouTube by barring him from the securities market for a year for allegedly providing advisory services like daily stock investment/trading calls without first obtaining the necessary registration from the regulator. As per the reports, P R Sundar, his company Mansun Consulting (under which the service fees were collected), and co-promoter of the company Mangayarkarasi Sundar have resolved their dispute with SEBI in the case of violation of investment adviser norms. These 3 have agreed to refrain from buying, selling or otherwise dealing in securities for one year from the passing of the settlement order, pay a sizable settlement and disgorgement amount, including profit earned from advisory services and interest on the profit.

Similarly, in another case, as quoted in the news, Finfluencer Gunjan Verma has been providing investment advice to clients since 2018. Although she had been charging clients for her advice services, she was not a registered investment advisor with SEBI. Due to this, SEBI has also directed Verma to stop providing investment advice, and a fine worth Rs 1 lakh has been imposed. Further, she has been instructed to refund all the money she has charged her clients in the form of advisory fees.

Earlier in March 2023, SEBI also cracked down on a ‘pump-and-dump’ scheme where financial influencers used social media networks to deceptively manipulate share prices to their advantage. Due to questions about the legitimacy and legality of financial advice given by influencers, this action emphasises the need for regulatory compliance in the financial advisory arena.

The SEBI action is a component of the current campaign by the regulatory body against unregistered investment advisers, who frequently prey on unwary investors. The SEBI has initiated a number of proceedings against unregistered investment advisors, and the above-mentioned are the most recent ones.

This article first appeared on PersonalFN here