SEBI Seeks Enhanced Powers for Market Regulation

India’s Securities and Exchange Board (SEBI) is pushing for expanded authority from the government. The regulator aims to combat unauthorized financial advice circulating on social media platforms like WhatsApp and Telegram. This request includes the ability to access call records for investigations into market violations. A government source and a document reviewed by Reuters confirm these developments. This marks the second time since 2022 that SEBI has sought such powers, with the government yet to respond.

SEBI’s Ongoing Battle Against Unregulated Advice

SEBI has intensified its efforts to investigate market violations. The regulator is particularly focused on unregulated financial advice that spreads through social media channels. These platforms have become popular among market participants, with influencers sharing trading tips in exchange for money. However, the lack of regulatory oversight has raised concerns about the potential for fraud and misinformation.

In its latest correspondence, SEBI highlighted the challenges it faces due to the current legal framework. Social media companies, including Meta Platforms, have not complied with requests for access to their group chats. SEBI’s letter, sent last week, pointed out that the existing information technology law does not recognize the capital markets watchdog as an “authorized agency.” This limitation hampers SEBI’s ability to investigate serious market violations effectively.

SEBI’s request includes the authority to remove any messages or links that violate securities regulations. The regulator believes that having these powers would significantly enhance its ability to monitor and control the flow of financial information on social media platforms.

Challenges in Gaining Access to Data

Currently, the power to access call data records lies with other law enforcement agencies, such as the Tax Department and the Enforcement Directorate. SEBI argues that it is at a disadvantage without similar powers. In a letter dated February 3, SEBI expressed its concerns about being limited in its investigations due to the inability to access crucial data.

Telegram has stated that it is in regular communication with SEBI and processes valid requests for content moderation. However, the platform has clarified that it cannot provide access to call data due to its technical architecture. This situation complicates SEBI’s efforts to gather evidence in ongoing investigations related to market manipulation, including insider trading and front-running.

As social media continues to play a significant role in financial markets, the need for regulatory oversight becomes increasingly urgent. SEBI’s request for enhanced powers reflects a growing recognition of the challenges posed by unregulated financial advice in the digital age.

Historical Context and Future Implications

This is not the first time SEBI has sought additional powers. In August 2022, SEBI Chairperson Madhabi Puri Buch made a similar request to the government. At that time, the government did not grant these powers but convened a meeting with various departments, including SEBI and Meta, to discuss ongoing investigations.

The government is currently reviewing SEBI’s new request. However, granting such powers typically requires a broader policy decision affecting all regulators. The official noted that these powers are usually reserved for serious crimes, which adds another layer of complexity to the situation.

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