The SEBI has taken another significant step towards tightening regulations on investment advisers and research analysts. On April 5, 2023, SEBI issued an Advertisement Code for Investment Advisers (IA) and Research Analysts (RA),and on April 6, 2023 issued a circular on usage of brand names / trade name by IA / RA, both of which will come into effect on May 1, 2023.
The Advertisement Code sets out the forms of communication that will come under its ambit, the information and disclosures that advertisements should contain, and prohibitions in the advertisements. Among other things, the Advertisement Code requires prior approval of advertisements and materials by SEBI-recognized supervisory bodies, such as a BSE Administration and Supervision Ltd. (BASL) in the case of IAs, before issuance.
SEBI has recognized the concern of the mushrooming social media accounts that provide stock tips or specific securities buy/sell recommendations that “solicit investments” or “promise unrealistic returns” in its working paper in 2016. The regulator has time and again red-flagged numerous complaints, including exorbitant fees charged from clients, mis-selling, non-disclosure of complete service fees/charges, and extracting money in the name of various charges.
In recent times, SEBI has pulled up managers of Telegram Messenger, Facebook, and YouTube channels for providing unsolicited advice. This move was much anticipated, given the increasing instances of social media influencers promoting stock tips and investment recommendations, which has led to unsuspecting investors losing money.
SEBI’s move to regulate the communication of IA/RA that influence investment decisions is commendable. Until now, SEBI has only carved out certain provisions for regulating advertisements and solicitation in certain regulations, such as the SEBI (Mutual Funds) Regulations and SEBI (Stock Brokers) Regulations, 1992. An advertisement code was issued vide a circular under the erstwhile SEBI (Portfolio Managers) Rules & Regulations, 1993. The U.S. Securities and Exchange Commission (SEC) has also modernized its rules governing advertisement and solicitation by investment advisers to regulate advisers’ marketing communications in the changing times.
It remains to be seen how SEBI will implement these circulars and the actions it takes for non-compliance/deviation against IA/RA especially from such a detailed Advertisement Code. Nonetheless, the regulator’s move is a positive one that will go a long way in safeguarding the interests of investors and curbing malpractices in the financial markets.
For reference, the Circular on Advertisement Code has been attached.
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