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19 Nov 2024
India's market regulator, the Securities and Exchange Board of India (SEBI), has recently intensified efforts to curb the activities of unregistered investment advisors, whose numbers have surged significantly. SEBI issued warning letters to these advisors, emphasizing the seriousness of such unauthorized activities and threatening action if they continue.
Unregistered advisors provide investment advice without SEBI's approval, violating the SEBI (Investment Advisors) Regulations. These advisors often lack the necessary qualifications and can mislead inexperienced investors, compromising their financial interests. SEBI's crackdown aims to protect market integrity and prevent disruptions in capital markets.
On June 27, SEBI's board approved a proposal to create an optional mechanism for SEBI-registered investment advisors and research analysts to collect fees from clients. This mechanism, accessible only to registered entities, aims to ensure investors interact with bona fide advisors. This initiative intends to distinguish registered advisors from unregistered ones, though some experts argue that making it mandatory would be more effective.
SEBI Chairperson Madhabi Puri Buch emphasized that the proposal aims to create a safe environment for investors, ensuring they engage with legitimate entities. This is expected to build trust in the system, helping good players in the market to stand out.
SEBI has also directed registered advisors to avoid associating with 'finfluencers'—financial influencers offering stock tips or unsolicited advice. Registered advisors and their agents are prohibited from having direct or indirect links with anyone providing such recommendations without SEBI's permission.
An anonymous investment advisor highlighted the stringent requirements for registration, including necessary certifications, examinations every three years, and a net worth of ₹50 lakh for 'non-individual advisors.' These tough criteria may discourage many advisors from registering.
SEBI has acted against several high-profile unregistered advisors. In May last year, financial influencer PR Sundar and his business settled with SEBI after being accused of offering investment advice without registration. Similarly, Gunjan Verma faced penalties for the same reason. In October, SEBI ordered Mohammad Nasiruddin Ansari and associates to deposit ₹17.21 crore obtained through unregistered advisory services and banned 4W Wealth Management for misleading investors.
Experts acknowledge SEBI's awareness of unregistered advisors but note that action often hinges on formal complaints. Lovaii Navlakhi, CEO of International Money Matters Pvt. Ltd., pointed out that pre-2013, there were no regulations, allowing advisors to operate freely. He suggests that SEBI should simplify the complaint process to make it easier for individuals to report grievances.
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