5 days Ago By Sakshi Sadashiv K
Explainer Briefly Slides In October this year, the Securities and Exchange Board of India (SEBI) issued a consultation paper proposing regulations for unregistered “finfluencers.” The draft suggests designating certain digital platforms as “Specified Digital Platforms” (SDPs) and requiring these platforms to implement measures to curb illegal activities, such as offering unauthorized financial advice or making performance claims about securities. Key recommendations include deploying AI and machine learning tools to identify unlawful content, issuing verification badges to registered entities, and establishing mechanisms for reporting and acting against violations within specified time frames.
SEBI also emphasized the importance of data-sharing between platforms and regulators to ensure transparency in addressing securities-related breaches. During MediaNama’s recent discussion , “SEBI Platform and Influencer Regulations,” participants including Natasha Agarwal, Senior Research Fellow at the TrustBridge Rule of Law Foundation; Deepak Shenoy, Founder and CEO of Capital Mind; and Puneeth Nagaraj, Partner at Shardul Amarchand Mangaldas & Co, discussed alternatives to SEBI’s approach to regulating market influence. Should stock discussions be banned altogether? Deepak Shenoy emphasised that restrictions on stock discussions undermine individual decision-making and learning.
Rather than a blanket ban, identifying fraudulent schemes like pump-and-dump operations through targeted surveillance would be a more effective approach. He states “I simply don’t understand the reason why we should ban people from influencing or talking about stocks. It’s like banning people influencing elections.
These are things that people should decide and learn on their own at some point. It’s the educational framework that allows people to learn.” He explains that the focus should be on education, not prohibition.
Can SEBI’s broad rules lead to enforcement issues? Shenoy explains how individual stock disclosures can be misconstrued as inducement. He warns that SEBI’s broad and preemptive regulations risk stifling legitimate free speech and market participation. “You know that if you actually go and ask SEBI for permission, what will happen is that the SEBI officials will have to go by the letter of the law.
The letter of the law is so broad that it pretty much includes anything that you say,” he stated. “Their (SEBI’s) default answer will be no, because they’re also not going to try and put their job on the line by saying, ‘Oh, yes, we can talk about this’ because somehow you’re a nice guy, versus somebody else who’s not such a nice guy,” he further explained. He adds “Their blanket answer will be, ‘No, you can’t do this.
’ If you ask them. If you don’t ask them, you’re in violation.” He explains that SEBI’s expansive regulatory framework could backfire, fostering uncertainty and selective enforcement.
Are SEBI’s existing powers sufficient? Natasha Agarwal highlights the inefficiency of relying on platform-based regulation, given SEBI’s already expansive investigative capabilities. She argues that current powers are sufficient to tackle fraud without resorting to unworkable influencer restrictions. Agarwal stated that SEBI already has extensive investigative powers, like impounding devices and conducting on-site investigations.
Relying on platform regulations is unnecessary and unlikely to address the root issues, as influencers will find workarounds. “They have powers wide enough that they can get a complaint or get a tip or whatever. They don’t need to necessarily go to the platform itself.
I don’t think that the draft circular actually solves the problem that they’re trying to solve, if it is indeed a problem. But it doesn’t work to say that influencers will just find other means or they’ll go elsewhere. That’s not something that is likely to work out,” she added.
Could advertising codes work better? Puneeth Nagaraj suggested implementing specific advertising standards and enhancing accountability for advertisers and content creators. He emphasised that existing frameworks can address fraud without resorting to SEBI’s broader, less targeted proposals. “If we’re looking at a framework where they narrowly address advertisers themselves, there is definitely an advertising code that exists for TV.
There’s no reason why that can’t apply to advertisers. Put the responsibility on the advertisers themselves and get them to agree to some code, a self-regulatory code,” he stated. He explained that a focused advertising code, akin to those for TV, could hold advertisers accountable while incorporating oversight for content creators.
This would ensure enforcement without over regulating or stifling legitimate content. How can regulators collaborate effectively? An attendee of the event, Aman Taneja, partner at law firm Ikigai Law highlighted the need for collaboration among regulatory bodies to create a more integrated and effective enforcement strategy that aligns with SEBI’s goals. “The motive, I don’t think, it’s wrong, but the intent, the manner in which this gets done, I think essentially speaks to very disjointed coordination between the different people who are going to be looking at regulating content,” he said.
“I think what we (would) really like to see is a lot more coordination between regulators,” he added. During the discussion Taneja asked a crucial question, “Well, is the government even talking to other arms of itself? Is what I’d like to see.” Are SEBI’s timelines practical? An attendee of the event, Berges Malu, an advisor at the Koan Advisory Group, discussed the unrealistic timelines proposed by SEBI, calling for more nuanced discussions with companies, NGOs, and activists to develop workable solutions.
“I mean, this 24-hour timeline, how does it work? Is there a stop the clock? Is this during market hours? On Saturday, Sunday, if somebody posts about this, do you need to really take it down in 24 hours?,” he stated. He highlighted the impracticality of the 24-hour take down, and raised questions about how it applies across different timelines, market hours, and non-working days. What lessons can we learn from past cases? Nikhil Pahwa, founder of MediaNama, highlighted the 2008 CNN initiative focusing on citizen journalism called CCN iReport.
“Someone uploaded an article or video saying that Steve Jobs had died. Now, this isn’t market advice. (However,) it spread and Apple stock price tanked for a short period of time,” he said.
Pahwa’s example illustrated how market influence can stem from misinformation rather than advice, highlighting the complexity of regulating market behaviour and the potential pitfalls of SEBI’s narrow approach. Read More.
