SEBI Tightens Grip on Investment Advisors: Social Media Presence Now Disclosed Twice a Year

In a significant move aimed at enhancing transparency in India's financial advisory landscape, the Securities and Exchange Board of India (SEBI) has introduced a new directive requiring investment advisors (IAs) to disclose their social media presence regularly.

This mandate, outlined in a circular issued on May 7, marks a proactive step by the regulatory body to monitor and regulate the online activities of investment advisors.

What's New? Twice-Yearly Reporting of Social Media Activities

As per a recent circular issued on May 7, 2024, IAs must now report details of their social media accounts, pages, and channels to the Investment Advisers Administration and Supervisory Body (IAASB) every six months. The reporting deadlines are set for September 30 and March 31 of each financial year. Previously, such reports were collected by IAASB on an ad-hoc basis.

Standardized Reporting Format Implemented

SEBI, based on recommendations from the Industry Standards Forum (ISF), has established a standardized reporting format. This format not only requires disclosure of social media activity but also includes details like:

• Bank accounts used to receive advisory fees

• Office addresses

• Shareholding pattern with details of any shareholder holding 10% or more stake

• Details of issued advertisements

• Number of complaints received

Why the Increased Scrutiny?

SEBI's move comes amidst growing concerns about the potential for misuse of social media platforms when it comes to investment advice.

• Large Investor Base: According to SEBI data from October 2023, India boasts over 1,300 registered IAs catering to a massive investor base exceeding 80 million.

• Unregulated Advice on Social Media: The vastness of the market allows unregulated entities to offer unsolicited and potentially misleading financial advice on social media platforms.

• SEBI's Crackdown on Influencers: SEBI has intensified its focus on social media, particularly after instances involving internet personalities like Ravisutanjani Kumar, Abhishek Kar, and Ankur Warikoo sparked controversies with their social media posts related to financial advice.

SEBI's Multi-Pronged Approach

SEBI's efforts to protect investors extend beyond the new social media disclosure requirement:

• Consultation Paper on Finfluencers: In September 2023, SEBI released a consultation paper proposing that regulated entities (like mutual funds) distance themselves from unregulated financial influencers (finfluencers).

• Potential Regulation of Finfluencers: Reports from January 2024 suggest SEBI is considering bringing finfluencers under its regulatory purview to ensure compliance with securities laws.

Conclusion

SEBI's mandate for social media disclosures reflects its commitment to safeguarding investor interests and maintaining the integrity of India's financial markets. By imposing transparency requirements on investment advisors, SEBI aims to mitigate the risks associated with unregulated financial advice circulating on social media platforms, ultimately promoting investor confidence and market stability.