Sebi intensifies its criticism of unregistered influencers who provide social media advice

 Sebi intensifies its criticism of unregistered influencers who provide social media advice

This year, the regulator's action represents at least the third prominent takedown of a financial influencer.

Written by Ashutosh Joshi and Chiranjivi Chakraborty

The large number of financial influencers in India are receiving more attention as the market regulator steps up efforts to stop unregistered advisers from giving out investment advice on social media.  

Last Monday, the Securities and Exchange Board of India ordered the return of Rs 17.2 crore ($2.1 million) that had been embezzled from followers and banned Muhammad Nasiruddin Ansari and two other organizations associated with him from the market. Nearly 500,000 people subscribe to Ansari's YouTube account. According to Sebi, his website gave investing advice while pretending to be an educational resource.

At least three high-profile actions against financial influencers have been taken this year, according to the regulator's ruling. Young investors are turning to social media in droves for stock advice as a result of the Indian equity market's persistent rebound since the pandemic's lowest points, while the spike in retail trading during the Covid period has cooled in many other areas of the globe. 

As a result, there are now a lot more influencers giving financial advice, like Ansari.

"Sebi is keeping an eye on influencers and their behavior, so you might see more actions from the regulator in the right situations," Manendra Singh, a partner at Mumbai-based Economic Laws Practice, said over the phone. "The battle between the regulator and the influencer ecosystem will go on."

Since the global equity market bottomed in March 2020, India's NSE Nifty 50 Index has increased by about 130% in terms of dollars. That is almost double the MSCI All Country World Index increase. The sharp increase in small- and mid-cap share prices in India has fueled an exponential rise in the number of trading accounts. 

Sebi has taken action against at least 29 unregistered firms for making recommendations, and has cautioned investors on many occasions about the risks of relying on questionable advice from social media. These include restrictions on Profit Guru and its creator Satish Shukla, as well as a crackdown on well-known influencer and options trader P R Sundar, who resolved the allegations with a fine of Rs 47 lakh.

In Ansari's case, Sebi claimed that he was misleading customers by promising monthly profits of up to Rs 600,000 and advising those who paid him for advise on in-the-moment transactions. According to the regulator, his YouTube channel also included certain videos that promised fast trading returns.

Sebi requested public feedback on a rule in August that aims to prevent advisors and analysts who are not registered with it from engaging in financial influencer activities.

According to Amit Kumar Gupta, founder and portfolio manager of Fintrekk Capital, registered investment advisors have also been negatively affected by the tightening of regulations due to higher compliance expenses.

He stated over the phone, "Doing business ethically is also difficult these days."

However, industry insiders assert that Sebi can bring influencers out of the Wild West and into the mainstream of investing by establishing explicit guidelines for their participation in certain activities.