Asmita Patel: Ban on financial influencer exposes regulation cracks

网红 Asmita Patel's goal is to "get India trading." The popular financial influencer calls herself the "Wolf of Dalal Street," a tribute to the Hollywood film "The Wolf of Wall Street." Statistically, she has over 500,000 subscribers on YouTube and hundreds of thousands of followers on Instagram. Her stock trading courses cost thousands of rupees.

Last month, the Securities and Exchange Board of India (Sebi) intervened. The agency banned her and six others from trading, accusing her of selling illegal stock recommendations under the guise of investor education and earning millions of rupees from it. The regulator's crackdown on Patel is its latest move to tighten control over social media influencers who offer quick-money schemes and trading advice disguised as education.

The post-pandemic boom in the Indian market has attracted a large number of new retail investors. According to data from brokerage firm Zerodha, online trading accounts increased from 36 million in 2019 to over 150 million last year. Many first-time market entrants rely on social media for trading tips, which in turn has spawned a new crop of self-proclaimed "investment gurus" or "financial influencers," such as Ms. Patel, promising quick profits.

As the country has only 950 registered investment advisors and 1,400 financial advisors, these influencers have quickly filled the gap, accumulating hundreds of thousands of subscribers and followers. Most of them operate without regulatory registration, blurring the lines between investment advice and stock market education. This prompted Sebi to take action, banning at least a dozen influencers (including a Bollywood actor) from providing trading advice. The regulator has also prohibited brokerage firms and market participants from partnering with influencers who peddle illegal stock recommendations or make misleading claims about returns.

The regulator found that Ms. Patel and her husband, Jitesh, through their consulting firm, guided students and investors to trade specific stocks. She allegedly sold tips using private Telegram channels, Zoom calls, and courses without mandatory registration. Sebi took action on Patel's case after 42 participants complained of trading losses and demanded compensation. The agency is now taking steps to confiscate the millions of rupees Patel and her associates earned from course fees between 2021 and 2024.

As markets adjust, the economy slows, and regulators crack down, other influencers are facing a credibility test. Thousands of angry investors recently accused some well-known influencers of fabricating success stories to sell trading courses and earn millions in brokerage commissions. Sebi's order in the Patel case also showed that she profited only slightly more than $13,700 (£10,800) from trading in the past five years, but earned over $11.4 million (£9 million) from selling courses. Ms. Patel did not respond to the BBC's request for comment.

While Sebi's efforts to protect small investors are well-intentioned, its recent regulatory actions have been criticized for being delayed and lacking clarity. Sucheta Dalal, a veteran financial journalist and writer, told the BBC that the regulator is both "selective" and a "reluctant" regulator. "It should have acted years ago when trading websites started paying influencers to promote their products. Now the phenomenon has become too big."

Sumit Agrawal, a former Sebi official, said that the regulator has picked a few people as examples instead of enforcing clear, comprehensive policies. "Curbing unregulated stock advice is necessary, but requiring trading schools to use data from three months ago for education, rather than teaching practical experience of real-time market trading strategies, is over-regulation," he said.

Manish Singh, a chartered accountant and YouTuber with 500,000 followers who makes market analysis videos, said that Sebi's new regulations have created confusion about what is 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 because confidence in working with creators has been shaken," Singh told the BBC.

Agrawal said that balancing this will be difficult for regulators. Technology is inherently disruptive, and the law is always "playing catch-up." He added that Sebi's real challenge is to effectively monitor online content without over-regulating. It is worth noting that Indian regulators have greater powers than their counterparts in developed markets such as the United States. "It has broad powers, including search and seizure rights and the ability to ban trading and freeze bank accounts without a court order," Agrawal said.

Reuters, citing sources, reported that regulators are again seeking greater powers - for the second time in two years - to access phone records and social media chats to investigate influencer-led market violations. Experts say the challenge is to ensure that there is no overreach.