India’s Securities and Exchange Board (SEBI) is taking steps to combat the proliferation of unauthorised individuals and firms offering investment advice via social media. The regulator’s latest action follows four previous orders passed in the past year, all aimed at addressing growing concerns that retail investors are being lured into the stock market by unregistered advisers.
SEBI rules stipulate that only advisers registered with the regulator can offer investment advice. The regulator’s enforcement actions are part of a wider effort to combat unsolicited investment advice being peddled on social media, particularly to retail investors. This is a growing problem in India, which has seen a surge in retail investors buying shares during the pandemic, along with a proliferation of unregistered advisers targeting these investors.
The companies potentially facing enforcement action are digital investment platforms that offer financial products and advice without appropriate regulatory licences. Penalties could range from a complete ban on accessing capital markets to refunds and penalties for wrongful acts. SEBI is examining whether these companies committed fraud or offered unregistered investment advice.
A SEBI study released in January revealed that retail investors in India’s futures and options markets rose by about 500% between financial year 2018-19 and 2021-22, and nine out of 10 of them incurred losses. The regulator’s enforcement actions aim to protect retail investors from such losses by cracking down on unauthorised advisers.
SEBI is also considering ways to regulate social media financial influencers more broadly. For example, influencers could be required to make disclosures and disclaimers on their social media platforms before they offer any public advice. The disclosures could include their stock market investments and whether they have received payment to promote financial products or stocks.
The regulator has asked for help from local stock exchanges and asset management companies to identify online chat groups where investment advice is being offered. Many of these channels have between 50,000-100,000 subscribers, and there are thousands of such channels, according to the sources.
Overall, SEBI’s actions reflect a growing concern about the rise of unauthorised advisers offering investment advice via social media. By cracking down on such activity, the regulator hopes to protect retail investors from financial losses and ensure that only registered advisers offer investment advice.