Imagine if someone created a fake copy of your identity, like an Aadhaar Card or PAN Card. With these, they could open bank accounts, take loans in your name, or even commit financial fraud.
Now, if someone reports these fraudulent activities, the police will come to you for questioning. And even though you know nothing about it, proving your innocence could be challenging. Would anyone believe you? The chances are the least.
Similar scenarios are on the rise in the stock market. Scammers are misusing the registration numbers of SEBI-registered Investment Advisors (IAs) and Research Analysts (RAs) to offer fake advisory services.
They use genuine registration numbers to provide fake advisory services, eventually impacting the reputations of legitimate advisors and leading to losses of traders who fall victim to their schemes.
The rise of such fraudulent activities is a serious concern, highlighting the need to be more careful, create robust security measures, and increase awareness among both advisors and investors.
Let’s learn a little more about how this scam occurs and are RAs and IAs always innocent in such cases.
How Identity Theft Occurs?
Whether it is a SEBI-registered stock broker, Research Analyst (RA), or Investment Advisor (IA), the details of each of them including their Name and Registration Number are available on the SEBI website.
Scammers fetch those details from there and use them in fake profiles on Telegram and other Websites from where they offer unauthorized investment advice.
Since they are not professionals in IA or RA they generally charge high fees or offer a profit-sharing model. Also, some of them handle clients’ accounts resulting in much bigger losses.
What is the Impact of Such Theft?
Now, this theft not only leads to heavy losses for the trader or investor who got trapped in it but also impacts the image of the registered entities whose names and numbers are being used in offering fake services.
The investor or trader on facing losses, generally reports the case to SCORES by adding details of the registered entity. This tarnishes the reputation of genuine RA or IA who get that registration after gaining knowledge for years and clearing the examination.
Every other day, we came across one or the other case, where the trader got scammed by the registered RA or IA. However, when we got into the depth, we found that the registered advisor knew nothing about it and some fake advisors impersonated them to scam people.
But in one or two cases, things turned out to be different.
There, although the registered advisor pretended to be unaware of the scam, further investigation revealed that they had rented out their registration number to multiple scammers, knowingly allowing their identity to be used for fraudulent purposes.
Also Read: RA Who Leased His Registration Number Refunds 100% Fees!
Scams and frauds like these make it even more important for the regulatory body to think of better ways to protect investors’ funds and the reputation of the registered entity.
How RA & IA can Report Suspicious Activity?
RA & IA are registered with SEBI hence they can directly reach out to the regulatory body to report similar kinds of suspicious activity that they encounter. This would help them protect their image and capital loss of investors.
Further, if the fraud already happened then they can take the help of local Police and Cyber Crime to report the case. In this way, he can take legal action against the fraudster.
What Measures Must SEBI Take To Stop Such Scams?
Now, to stop the theft of identity and the renting of registration numbers, SEBI must take strict action.
For this, the first and foremost task is to identify the loopholes resulting in such frauds. Well, there could be many, and one of those is the communication platforms.
Are registered RA and IA using domain emails to communicate with their clients? If not, then SEBI must make it a part of the regulation and keep a check on this to avoid misuse of data and identity.
Another is the payment system. As per the regulation, a registered RA or IA can take fees only through NEFT, RTGS, Demand Draft, or UPI.
But how many new investors and traders are aware of this? Recently SEBI released an order against a registered IA only who was using Razorpay to collect fees from his clients.
This means even the registered bodies themselves are not concerned about the regulations and this might be the biggest reason why such scams are increasing day by day.
Further, the unawareness of investors to SEBI regulations makes it easier for scammers to meet their objectives.
Also Read: 5 Things to Check Before Taking IA Services!
Now to make it better, a SEBI must provide a specific payment gateway exclusively for the registered body that makes it easier for investors as well to differentiate between genuine and fake advisories.
Additionally, registered entities should actively educate investors and traders to raise awareness and prevent such scams from occurring.
How RA & IA can Report Suspicious Activity
Conclusion
Identity theft is a growing concern that requires immediate attention from both SEBI-registered RAs and IAs and regulatory bodies.
By taking proactive steps to protect their digital identities and educating investors, RAs and IAs can safeguard their reputations and continue to serve their clients with integrity.
Meanwhile, SEBI’s role in tightening regulations and raising awareness is crucial in curbing this theft
Investors must also do their part by being vigilant and verifying the credentials of anyone offering financial advice. In a world where information is just a click away, staying informed and alert is more critical than ever.
