Sebi’s crackdown on investment advisors, both unregistered and registered, has overwhelmingly zeroed in on one group—trading call providers. A study by the Association of Registered Investment Advisors (ARIA) showed that 138 out of 151 enforcement orders passed by the regulator until March were against advisors offering trading calls or stock tips.
The clampdown has been particularly harsh on unregistered advisors, commonly referred to as finfluencers, who have been doling out risky stock or trading tips with promises of guaranteed returns. Of the 138 orders, 104 were directed at these unregistered entities in a bid to bring the burgeoning community of finfluencers under its regulatory net.
“The analysis points to the need for sharply focussed action against unregistered entities and separate treatment necessary for those RIAs that are not trading call providers,” the association said in its latest report.
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Sebi’s enforcement also extends heavily into another target area–the derivatives segment. Out of the 151 orders, 131 were passed for services provided in relation to the derivatives segment. Last month, Sebi proposed several measures to rein in the excessive speculation in the futures & options (F&O) market.
Sebi’s crackdown has intensified over the past year, with 91 of the total orders being passed in 2023-24 alone. Of these, 81 were against trading calls, and 75 were related to investments in derivatives products.
Once again, unregistered advisors bore the brunt of these actions, with 58 out of these 81 actions taken against stock tips. The consequences for these finfluencers have been severe, with Sebi’s orders often leading to debarment from the securities market or the mandatory refunding of money.
Registered investment advisors have not been spared either, receiving a total of 31 orders in the past fiscal year for violations ranging from improper risk profiling and fee structures to issues related to qualifications, certifications, and net worth requirements. Some RIAs believe many of these concerns could be addressed once Sebi implements the regulatory relaxations proposed earlier this month.
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The report also sheds light on the sources of Sebi’s investigations. For RIAs, 60% of the regulator’s investigations stem from complaints lodged through Sebi’s Complaints Redress System (SCORES), supplemented by findings from routine inspections.
In contrast, nearly 65% of the actions against finfluencers originated from email complaints, with the remainder initiated through Sebi’s investigations and the SCORES platform. The report also mentions that Sebi took cognizance of social media posts in only one case, and urged the regulator to increase its monitoring of social media activities.
