1 week Ago By Sakshi Sadashiv K
Explainer Briefly Slides In October this year, The Securities and Exchange Board of India (SEBI) proposed a consultation paper to regulate unregistered “finfluencers” by recognizing certain digital platforms as “Specified Digital Platforms” (SDPs). The paper outlines preventive and curative measures these platforms must adopt to prevent illegal activities, such as unregistered entities offering financial advice or making performance claims related to securities. SEBI suggests using AI and machine learning tools to identify illegal content, provide verification badges to registered entities, and implement mechanisms to report and act on unlawful content within specified timeframes.
Platforms must also collaborate with SEBI to share data and ensure transparency in tackling securities-related violations. Speaking at MediaNama’s recent discussion titled “SEBI Platform and Influencer Regulations”, Natasha Agarwal, Senior Research Fellow, TrustBridge Rule of Law Foundation, Deepak Shenoy, Founder and CEO, Capital Mind and Bhargavi Zaveri-Shah, Researcher Financial Regulation, University of Singapore, weighed in on the scope of regulation under the SEBI Act Can the Digital Platforms Regulations Be Justified Under the SEBI Act? One of the key questions emerging from this regulation is whether SEBI’s regulation of digital platforms, especially influencers in the financial sector, is within the scope of the SEBI Act, considering its indirect control over content outside its traditional jurisdiction, including paid content such as advertising. Natasha Agarwal, Senior Research Fellow, TrustBridge Rule of Law Foundation states “The scope of SEBI’s power under the SEBI Act is fairly wide .
.. But we do need to question the manner in which they are trying to regulate digital platforms.
They have proposed issuing this circular under Section 11.1 of the SEBI Act, which gives SEBI the power to protect the interests of investors and promote regulation of the stock market by such measures as it thinks fit.” She further elaborated, “Under 11.
2, there is some guidance on the types of measures SEBI can implement. They can register and regulate intermediaries or depositories, promote investor education, and prohibit fraudulent trade practices. While other jurisdictions also issue guidelines on content regulation, SEBI’s approach seems to bypass the procedure in the SEBI Act, where regulations must be approved by parliament.
Instead, SEBI is utilising Section 11.1 to expand its powers without parliamentary approval.” Is SEBI’s Regulation Expanding Beyond Its Traditional Scope? Agarwal agrees, “Yes, I think SEBI is cognizant of the fact that it has wide powers under the SEBI Act.
Off late, there has been a trend towards expanding its scope.” She says that recently there has been a trend towards expanding its scope, similar to how it has been widening the definition of ‘connected persons’ under insider trading regulations. “SEBI is looking to expand its scope of powers and is using vague language under Section 11.
1 to achieve that”, she states. Does SEBI’s Policy Mean That Platforms Cannot Work with Certain Influencers? Deepak Shenoy, Founder and CEO CapitalMind elaborates, “Technically, this means I cannot hire an influencer who gives securities advice. For example, if I hire someone who has videos giving trading tips, like options trades, I cannot associate with them in a commercial capacity.
” However, he states that SEBI operates in a way that almost everyone is painted as a violator under the law, and enforcement will be based on SEBI’s discretion. “But in general, the way SEBI operates is that almost everybody will be painted as a criminal in the wordings of the law. It will be up to them to enforce,” he states.
The real challenge is further exacerbated as it comes with the platforms themselves, especially since they can’t effectively monitor all content, such as on platforms like Telegram. He further adds that the law could even impact platforms like Whatsapp, where one might forward videos or give trading advice. “The way the rules are written, it basically encompasses anything.
.” he states. “Right now, the way the rules are written, you can’t do anything.
You can’t operate in any meaningful way at all”, Shenoy adds. Shenoy explains that this method is often used to promote securities by giving trading advice, like suggesting specific options trades, and offering this advice for free on platforms like YouTube. However, this practice isn’t much different from what’s happening on TV channels, where similar advice is given.
“This is no different from what happens on TV channels. But TV channels don’t get affiliate revenue. They get advertising revenue.
Anybody going on TV and giving advice on buying and selling, which happens on TV all the time, would technically be an advisor.” Therefore, associating with those individuals will constitute a problem. Furthermore, he says that SEBI has been pressuring platforms like Youtube to take down videos from unregistered influencers giving investment advice.
“Youtube has recently said yes and taken down a bunch of videos from people. Those people are complaining that why are you taking down my videos? TV channels videos do the same thing, which is tell people to buy and sell certain securities, and why are you taking on my videos, which are both free and I don’t get any affiliate revenue. I just make ad revenue from YouTube.
..” How Does SEBI’s Regulation Blur the Line Between Education and Advice? Shenoy states that the line between advice and education is quite nuanced.
For example, if someone says, ‘Here’s what I did with my money,’ it could be seen as education, but if they say, ‘I made a profit doing this, you should try it,’ that becomes more of an inducement. SEBI seems to be stricter on content that promotes financial actions or gives specific advice. “All these laws, unfortunately, create the situation of extreme amounts of power that resides inside of the regulation or the regulator.
In that sense, it creates that layer of arbitrariness, which we should not”, states Shenoy. Are SEBI’s Expanding Powers Potentially Problematic for Free Speech? Bhargavi Zaveri-Shah, Researcher, Financial Regulation, University of Singapore raises concerns about SEBI’s increasing powers, “Let’s not forget that under the SEBI Act, every violation of a SEBI directive is a criminal violation. So SEBI chooses not to prosecute? Its benevolence.
But actually it can choose to prosecute. So it’s not just about a monetary penalty and they’ll ban you from the markets and so on and so forth. It can choose to initiate criminal proceedings, and that’s not something to be taken lightly about.
” She adds that the regulations already exist to tackle misinformation, such as the Investment Advisory Regulations, 2013 and the Research Analyst Regulations, 2014 . There are existing frameworks to deal with fraudulent or misleading advice in the securities market. SEBI’s proposals further widen its existing powers.
The scope of what SEBI is banning keeps increasing and the number of people who are allowed to give investment advice keeps getting narrower. How Does SEBI’s Regulation Affect Competition and Investor Accessibility? Zaveri responds that SEBI’s approach could potentially reduce competition by narrowing the pool of influencers and advisors. “If you see the trajectory, the powers have been only growing.
This means that the competition in this space is likely to reduce”, she states. Nikhil Pahwa, Founder-Editor of MediaNama also shared an anonymous comment stating that SEBI’s guidelines are a much-needed step to protect investor interest, particularly with the influx of new retail investors. Many first-time investors are drawn to financial products promoted by influencers on social media, which increases the risk of misinformation, misleading claims, and conflicts of interest.
SEBI’s efforts to regulate influencer activities by enforcing clear disclosures, ensuring compliance, and restricting unqualified advice is a step needed in the right direction. The commenter expresses support for SEBI’s initiative to regulate influencers, ensuring transparency, accountability, and restricting unqualified advice. “SEBI should come down very hard on these platforms so that they can’t continue to allow content without any moderation.
There is a need to reduce these instances as retail investors may get swayed by very high return promises, and these companies will claim safe harbor.” the commentator stated. Read More:.
