SEBI’s Crackdown: Unregistered Investment Advisers Face Strict Penalties

1. Introduction

Investment Advisers (IAs) play a crucial role in guiding investors to make informed investment decisions. However, there are many unregistered investment advisers who operate illegally and fleece investors of their hard-earned money. The Securities and Exchange Board of India (SEBI) has been taking strict action against unregistered investment advisers in recent years.

2. Understanding: Unregistered Investment Advisers

In layman terms, an Unregistered Investment Adviser is a person or entity who provides investment advice without obtaining registration from the SEBI. This is a violation of the SEBI (Investment Advisers) Regulations, 2013 (IA Regulations).

A recent report by Indian Express, suggests that around 35% of investment advisers are not registered.

3. Why is SEBI taking action against Unregistered Investment Advisers?

SEBI is taking action against unregistered Investment Advisers for the following reasons:

• To protect investors from fraud and exploitation: Unregistered advisers may lack expertise, engaging in fraudulent practices and misrepresentation of qualifications, jeopardizing investor interests.

• To maintain the integrity of the securities market: Unregistered advisers may disrupt the market with inaccurate information, impacting its smooth functioning.

• To uphold ethical standards in the investment advisory profession: Registered advisers adhere to a strict code of conduct, ensuring ethical practices. Unregistered advisers, exempt from this code, pose risks to investors

4. Recent penal actions taken by SEBI against Unregistered Investment Advisers are –

(a) On October 26, 2023, the Market Regulator took action on Mohammad Nasiruddin Ansari, a popular Youtuber going by the name of “Baap of Chart”, banning him from the securities market and impounding a fine of INR 17.2 crore for illegal gains.

The SEBI received a complaint against Ansari stating that he has been looting retail traders by claiming assured returns. He had been selling courses with claims of 200-300% profit by trading Bank Nifty.

After due investigation, the SEBI said that Ansari had been drawing in gullible viewers in exchange of inducing them to join his classes and thereby making them trade in the securities market.

In a clear violation of the rules, he was providing buy/sell/hold recommendations to his clients.

This case was much discussed amongst the finfluencer community since Baap of Chart generated a major chunk of his revenue via YouTube.

(b) Further in November 2023, SEBI debarred 2 individuals from the securities markets for one year and slapped a fine of Rs 2 lakh on them for carrying out unregistered investment advisory activities.

SEBI also directed the noticees (P Krishnakumar and Jagadeesan S) to refund all the money, within 3 months, collected from any investors/ complainants, as fees in respect of their unregistered investment advisory activities.

The order came after SEBI conducted an examination on the receipt of a complaint against www.ymforecast.com managed by P Krishnakumar and Jagadeesan S, and prima facie found that they were carrying out unregistered investment advisory activities.

In a decisive move, SEBI went beyond and took stringent action against additional unregistered investment advisers in 2023. The recent bans include prominent names such as: –

• Capital Exchange India
• Mayuri Verma
• Ankit Mishra

In response to a query from Moneycontrol on whether SEBI had a mechanism to nab Unregistered Investment Advisors, Madhabi Puri Buch, Chairperson of SEBI, said “Something’s cooking. Wait for some time.”

5. FAQs

Question 1: Why is SEBI cracking down on Unregistered Investment Advisers? 

Answer: SEBI is taking action against unregistered investment advisers to protect investors from fraud, maintain the integrity of the securities market, and uphold ethical standards in the investment advisory profession.

Question 2: What can I do if I’ve been duped by an Unregistered Investment Adviser?

Answer: If you’ve been a victim, you can either send an email to SEBI or raise a complaint on the SCORES portal to initiate appropriate actions against the fraudulent adviser.

Question 3: I’ve been involved in Unregistered Investment Advisory activities. What should I do now? 

Answer: You have two options: Either put a full stop on such activities to avoid penalties and risks or obtain registration from SEBI. The process involves meeting the eligibility criteria, certification, and net worth norms, as outlined in the IA Regulations.

Question 4: What is the Process for obtaining registration as an Investment Adviser?

Answer: To get registered as an investment adviser, one must meet the eligibility criteria, certification and net worth norms as per the IA Regulations, such as:

• Should be a post graduate or holds a professional qualification from a recognized university or institution in India or abroad or a CFA charter from CFA Institute.
• Should have relevant NISM Certification.
• Should have a minimum of 5 (five) years of experience in the related field.
• Should have a minimum net worth of –

Sr. No.	Particulars	Amount in INR
1.	Non-Individual investment adviser (Body Corporate i.e., Company or LLP)	50 lakhs
2.	Individual investment adviser (Individual and Registered Partnership Firm)	5 lakhs

Once the applicant fulfills the above-mentioned criteria, he/ she shall follow the below-mentioned steps to obtain registration as a Registered Investment Adviser (RIA) from SEBI:

i. Prepare and submit documents to BASL.

ii. Receive in-principal membership from BASL.

iii. Pay non-refundable fee, submit to SEBI.

iv. Provide additional information to SEBI.

v. Get SEBI’s approval.

vi. Pay SEBI’s registration fee.

vii. Receive registration number from SEBI.

viii. Pay BASL membership fee.

ix. Receive BASL membership certificate.

x. SEBI issues registration certificate.

6. Conclusion

It is evident that in recent times, the SEBI is taking strict action against Unregistered Investment Advisers to protect investors and maintain the integrity of the securities market. Investors should always invest through Registered Investment Advisers to avoid falling prey to any such fraud and exploitation.

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I hope this article has helped you understand the risks associated with Unregistered Investment Advisory. In case you have any queries, or seeking professional assistance in obtaining Investment Adviser registration with SEBI, feel free to contact me at mayank.jha@outlook.com or csbuzzinfo@gmail.com.