SEBI Bans Investment Advisors From Advising on Unregulated Instruments, Including Digital Gold and Crypto

On 21st October, the Securities and Exchange Board of India (SEBI) announced that investment advisors are barred from advising on unregulated instruments. This effectively bans the investment advisors from advising on cryptocurrencies, digital gold and other unregulated products.
"It has come to the notice of SEBI that some registered investment advisers are engaged in unregulated activity by providing platform for buying/ selling/ dealing in unregulated products including digital gold," SEBI said.
Offering advisory, distribution, execution or implementation services in unregulated instruments is not in accordance of with the provisions of Section 12(1) of the SEBI Act, 1992, the market regulator added.
"Investment Advisers are, hereby, advised to refrain from undertaking such unregulated activities," SEBI noted, further stating that any dealing in unregulated activities may lead to action under the SEBI Act, 1992.
This comes within a month of stock exchanges prohibiting stock brokers from dealing in digital gold. On 26th August, exchanges had prohibited stock brokers from dealing in digital gold by 10th September.
Experts view it as an investor-friendly move as in case of any mishappening, there is no regulatory recourse available to retail investors. 
Fintech firms registered as investment advisors with SEBI have been offering digital gold services, wherein customers could buy small quantities of digital gold on the apps and the gold would be stored with partner firms. In some cases, the platforms were referring clients to partner firms instead of offering the product directly.
The product is similar to gold exchange-traded fund (ETF) units. But, unlike ETFs launched by fund houses and regulated by Sebi, digital gold receipts are yet to get the regulatory nod.
On 10th September, Paytm Money, which is registered as an investment advisory, had in a blog post said that digital gold will only be available on the ‘Paytm’ app and not on Paytm Money.
“Digital gold is a product offered by Paytm, which is not a stockbroker or investment advisor. Due to which, our services will remain unaffected and you can continue to buy/sell or track your digital gold seamlessly on the Paytm app," the company had said in the blog post.



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Changes in Our Business Model
25th Sept 2020
Greetings from Moneylife Advisory Services
Between financial years 2019-21, SEBI has come up with extensive changes to investor advisor regulations. On Sep 23, 2020, SEBI had issued new additional guidelines. This comes just two months after extensive changes announced in July 2020. Earlier, in December 2019 there was an ad hoc circular
As a result of these changes, IAs, cannot accept fees through credit cards, will have to sign a 26-clause investor agreement, have to maintain physical record written & signed by client, telephone recording, emails, SMS messages and any other legally verifiable record for five years. IAs were already asked to record the suitability and rationale for every piece of advice given, sign them and store them for five years.
While these extensive and frequent changes, designed to strengthen the conduct of IAs are well-meaning, these have sharply increased compliance efforts and cost. We, being online advisors, find many of changes harder to implement, compared to advisors working in the physical space. We will have to have an army of advisors, administrative and tech staff to be compliant. If we do this, we will have to divert money to these areas and the cost of our service will double. We want to remain the least-cost service in the market to benefit more and more people. In the circumstances, we are forced to change our business model from “advisory” to “research”. This will mean the following:
What remains the same:
  • Recommendations on insurance, investment and Lion stocks, will continue as a part of the MAS premium subscription. Our strength has always been research and this will remain available to you through our recommendations.
  • The magazine and all textual content will remain as part of the service
  • We will have to suspend the restructuring tool.
What changes:
  • The interactions in Ask / Handholding will offer investment advice but not specific to your situation. It will offer information on investment products and also clarify your doubts about various financial products. It will be a forum for information, not for advice. This will be implemented with immediate effect and our guidelines in Ask, reflect this now.
Over the next few weeks our site and our communication to you will reflect these and other additional changes.
We feel this will not affect you much in terms of what really matters in investing: knowing what to buy and when to buy. This is our edge and it will still be available to you.
Debashis Basu