Ban on financial influencer exposes regulation cracks
Asmita Patel Global School of Trading
Ms Patel has over half a million subscribers on YouTube and hundreds of thousands more on Instagram
YouTuber Asmita Patel’s mission was to “make India trade”.
The wildly popular financial influencer called herself the “She-Wolf of the stock market” – her take on the Hollywood film The Wolf of Wall Street. At last count, she had clocked upwards of half a million subscribers on YouTube and hundreds of thousands on Instagram. Fees for her stock trading courses ran into thousands of rupees.
Last month, the market regulator Securities and Exchange Board of India (Sebi) put a spanner in the works. It barred her and six others from trading, alleging she was selling illegal stock tips disguised as investor education and making millions of rupees in the bargain.
The regulator’s crackdown on Patel is its latest attempt to tighten the noose around social media influencers offering quick money schemes and trading advice disguised as education.
India’s post-pandemic market boom attracted a wave of new mom-and-pop investors. Online trading accounts grew from merely 36 million in 2019 to more than 150 million last year, data from the brokerage Zerodha shows.
Many of these first-time market entrants relied on social media for trading tips which, in turn, birthed a new breed of self-styled “investment gurus” or “financial influencers” like Ms Patel, promising quick money.
With only 950 registered investment advisors and 1,400 financial advisors in the country, these influencers quickly filled the void, amassing hundreds of thousands of subscribers and followers.
Most operated without regulatory registration, blurring the line between investment advice and stock market education. This prompted Sebi to crack down, banning at least a dozen influencers, including a Bollywood actor, from offering trading advice.
The regulator has also barred brokerages and market players from partnering with influencers who peddle illegal stock tips or make misleading return claims.
The regulator found Ms Patel and her husband, Jitesh, directing students and investors to trade specific stocks through their advisory firm. She allegedly used private Telegram channels, Zoom calls and courses to sell tips without mandatory registration.
Sebi acted in Ms Patel’s case after 42 participants complained of trading losses and demanded compensation. It is now moving to seize millions of rupees that Patel and her associates earned from course fees between 2021 and 2024.
The regulator acted in Patel’s case after 42 participants complained of trading losses
As markets correct, the economy slows and regulators crack down, other influencers face a credibility test.
Thousands of angry investors have recently accused high-profile influencers of faking their success to sell trading courses and earn millions in brokerage referrals.
Sebi’s order in Ms Patel’s case too revealed she made just over $13,700 (£10,800) as trading profits in the past five years but earned more than $11.4m (£9m) by selling courses.
Ms Patel didn’t respond to the BBC’s request for comment.
While Sebi’s drive to protect small investors is well intentioned, its recent regulatory actions have drawn criticism for being delayed and lacking clarity.
The regulator has been both a “selective” and “reluctant regulator”, Sucheta Dalal, veteran financial journalist and author, told the BBC.
“It should have acted a few years ago when trading sites started paying influencers to promote their products. Now this phenomenon has become too big.”
Sumit Agrawal, a former officer with Sebi, says the regulator singled out a few as an example instead of enforcing a clear, comprehensive policy.
“Curbing unregulated stock tips is necessary, but requiring trading schools to use three-month-old data for educational purposes and not teaching practical experience of trading strategies on live market crosses into over-regulation,” he says.
Manish Singh, a chartered accountant and YouTuber with half a million followers, makes market analysis videos. He says Sebi’s new rules have created confusion over what’s allowed.
“Even genuine content creators who are trying to guide people in the right direction will lose subscribers and the monetary incentive of brand deals as confidence to work with creators is shaken,” Singh told the BBC.
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Online trading accounts grew from merely 36 million in 2019 to over 150 million last year
Balancing this will be tough for the regulator, says Mr Agrawal.
Technology is inherently disruptive and the law is always “playing catch-up”. Sebi’s real challenge, he adds, is to monitor online content effectively without over-regulating. Notably, the Indian regulator wields broader powers than its counterparts in advanced markets like the US.
“It has extensive authority, including search and seizure powers and the ability to ban trading and freeze bank accounts without requiring a court order,” says Mr Agrawal.
A Reuters report, citing sources, says the regulator has again sought greater powers – its second request in two years – to access call records and social media chats in investigations into influencer-led market violations.
The challenge, say experts, will be to ensure it doesn’t throw the baby out with the bath water.
