1 week Ago By Kamya Pandey
Explainer Briefly Slides The Information and Technology Act, 2000 (IT Act) already addresses the concerns of the Securities and Exchange Board of India (SEBI) in terms of curbing financial misinformation, Puneeth Nagaraj, a Partner in the Public Policy and Regulatory Affairs team of Shardul Amarchand Mangaldas & Co said during MediaNama’s recent event, “SEBI Platform and Influencer Regulations”. Nagaraj made this point in the context of SEBI’s recent consultation paper where it urges specified digital platforms to prevent content (including advertising) related to securities fraud, impersonation, claims by unregistered entities, and presence of the unregistered entities. “We’ve been here before with many other regulators as well.
We’ve done e-commerce, we’ve done consumer protection, as you mentioned in the beginning. I think what seems to be happening is every regulator now comes to a problem and tries to start from scratch, try and solve it,” Nagaraj said. He added that platforms are not liable for third-party content (for both advertisements and user-generated content) under the IT Act.
When MediaNama Editor Nikhil Pahwa pointed out that SEBI’s proposed regulatory framework does not hold platforms liable, Nagaraj argued that the challenge then becomes— What happens to platforms who do not want to be specified digital platforms (SDPs) under SEBI? “There are two ways of looking at it. One is to say, SEBI’s framework does not regulate me. But on the other hand, the regulation also gives you all the powers, arguably.
And it becomes incumbent on you to go and then fight the decisions taken and the process itself becomes a punishment,” he explained. Is there even a need for sector-specific platform regulation? Nagaraj questioned what specific reason SEBI had for regulating platforms, given that the IT Ministry already does so. He gave the example of the Misleading Ads regulation (the Legal Metrology Rules, 2011) under the Consumer Protection Act explaining that under this regulation, advertisers have to give disclosures about the products they are advertising.
“The CCPA does have power to proceed directly against the advertisers. So if another regulator has been able to do this, there’s no case for why stocks or securities are different. There’s no case for why SEBI, especially if it seemingly envisions a scenario where everybody has to be registered to SEBI as well, why they can’t proceed directly against the content creators?” he questioned.
Nagaraj also touched upon the fact that SEBI requires platforms to use AI/ML to identify financial content on their services. “Given the broad wording of the regulation, I can’t speak to the technology part of it, but it would essentially mean you look through possibly all content or all content that relates to financial sector information and then sift through it before permitting on your platform,” he explained. Nagraj added that this would mean that the platform is no longer an intermediary because intermediaries don’t interfere with the content on their platforms.
Why should platforms not face consequences? SEBI’s proposed framework says that SEBI-registered entities must not associate with unregistered financial influencers (fin-fluencers) unless the entities are associating with unregistered individuals through a specified digital platform. SEBI-registered entities include stock exchanges, recognised clearing corporations and registered depositories, and their agents. “Why shouldn’t platforms that fail to comply with SEBI’s guidelines not face the consequence that a SEBI-registered entity will not advertise with them?” Pahwa asked Nagaraj.
Nagaraj responded that the definition of platforms under SEBI’s proposed regulation is so broad it includes websites or even television channels. He emphasised that unlike television channels or newspapers, intermediaries have no control over the content people post on their services. “If you’re dealing with the content that’s merely allowing third-party ads or third-party platforms – it doesn’t even have to be a social media company – if you look at some of the ads, you could be reading the news and you could have ad pop-ups that relate to, say, financial sector information, any of the information.
A lot of times, I don’t even know that they know what ads are being placed on the platform. That’s usually done through third-party ad tech platforms,” he pointed out. He argued that saying only a company is profiting from advertising on a platform is not accurate.
Further, he emphasised that platforms don’t have all-encompassing technology solutions to problems. “There is a notion among Indian regulators, MeitY [Ministry of Electronics and Information Technology] has also been guilty of this to suggest that there’s a technological solution to everything. You deploy technology, it finishes the job and it’s all done.
It’s not as easy as that. And what we should always be worried about are the second-order effects of doing something like this,” Nagaraj mentioned. The concern over regulatory overlaps: Pahwa questioned how SEBI’s regulation on financial influencers interacts with the Ministry of Information and Broadcasting’s (MIB) regulation of advertising.
Nagaraj responded to this saying that there should be more collaboration between regulators. “But we should also be kind to the regulators to acknowledge that they can’t completely eliminate the overlap either,” he added. Nagraj mentioned that the way courts approach things is that they try to read various regulations harmoniously.
“The issues crop up when there is a very obvious contradiction where essentially complying with one law is going to create issues with another framework, where somebody overstepped their boundaries, for instance. Unfortunately, in the present case, we’re dealing with a situation where that has happened,” he said. When asked whether this regulation should have come from the MIB or the Ministry of Corporate Affairs (MCA), Nagaraj said that one cannot completely eliminate SEBI’s role from securities regulation.
Pahwa, however, contended that through its proposed framework SEBI is regulating advertising with influencers on the platform, adding that this is basically stepping into the territory of MCA, MIB, and MeitY all in one go. Nagaraj said that in this situation regulators have to make sure that they narrowly tailor their regulation. He brought up the example of the telecom regulator’s spam regulation explaining that the regulator took it up because SEBI and the Reserve Bank of India (RBI) had flagged concerns with spam.
“Finally, the DoT stepped in and regulated how people send commercial communication over telephones,” he added. Similarly, with respect to e-commerce regulation MeitY and the Department for Promotion of Industry and Internal Trade. “What they’ve all managed to do to a certain extent, I’m not saying it’s a perfect solution, is acknowledge the safe harbor protection that exists.
Ensure that you’re not completely disregarding frameworks that exist,” he said. How regulators can go about dividing responsibilities: Nagraj added that regulators have a piecemeal way of dividing their roles and the Supreme Court has given guidelines for it. “If you look at the TRAI [Telecom Regulatory Authority of India] vs CCI [Competition Commission of India] case , the Supreme Court didn’t completely overrun CCI’s role, nor did not completely overrun TRAI’s role,” he explained.
With respect to the current SEBI regulatory framework, he mentioned that SEBI could have worked with consumer affairs ministry. “It’s not the best example, but if you look at the intermediary guidelines and you could question the legality of it, they did find a way to shoehorn MIBs concerns,” Nagaraj mentioned. Is a 24-hour timeline for content takedowns feasible? SEBI’s framework requires platforms to preemptively take down content that is violative of securities regulations, and those impersonating SEBI officials.
“I’m confused about when this 24 hours starts. If it is on the basis of a user report, sure. Depending on the scale of how a platform adopts, one can figure how to comply with the government regulation,” Tamoghna Goswami, the policy head of Sharechat, mentioned during the event.
Goswami mentioned that platforms need clarity on when the clock starts and what content platforms need to act against. “If it is not clearly said, ‘this is what a security violation looks like’, let’s say if it’s a fraudulent practice of front running or something on those lines, if I’m not clear about it, there’ll be three layers of moderators it will have to go through because we don’t want to invariably put down a piece of content which may be of use to some user,” she explained. Platforms need more than 24 hours to put content through these three layers of checks, she argued.
What happens to r/wallstreetbets under SEBI’s framework? r/wallstreetbets is a community on Reddit where people discuss stories pertaining to stock/securities trades. When asked whether this community would have to shut down as a result of SEBI regulations, Nagaraj said that the decision to shut it would be based on what the platform wants to do. “SEBI is not going to shut it down.
The pressure is going to be on the platforms. Then you have to ask the question of, is the platform in this case going to become a specified digital platform,” he mentioned, adding that SEBI has completely outsourced regulatory implementation to platforms. What measures do platforms already have to curb financial misinformation? Goswami mentioned that when an ad tech platform takes an ad and publishes it on social media sites, it has checks and balances in place .
If the ad does not pass those checks, then it is not published. This level of check happens at the ad-tech platform’s level. On the user-generated content side of things, the user has the ability to report fraudulent content.
“Let’s say if any magical remedy is being put out and if they think that and someone’s trying to charge money for it, they have the ability to report the same. There are moderators who will react to it as for the internal regulations which are provided,” she mentioned. Also read:.
