'Overreach': USISPF, Nasscom on Sebi's specified digital platform plan

The proposal followed Sebi's mandate restricting the association of registered entities in the securities market with those who are unregistered or not covered under the ambit of the market regulator

Advocacy group US-India Strategic Partnership Forum (USISPF) and IT trade body Nasscom have flagged concerns over a recent proposal by the markets regulator, Securities and Exchange Board (Sebi), to define Specified Digital Platforms (SDPs).

 

Sebi’s October 22 consultation paper outlined criteria for recognising SDPs with which Sebi-registered entities shall be allowed to engage or associate for  content, advertising, and related activities.

 

The proposal followed Sebi’s mandate restricting registered securities market entities from associating with unregistered or non-regulated platforms. To qualify as an SDP, platforms must adopt policies to take action against users and content creators responsible for fraud, impersonation, and misleading claims in connection with the securities market. Specified actions include content takedowns, channel removals after three violations, and blacklisting entities on three instances of infractions.

 

 

The USISPF, in its response to the proposal, said the draft circular attempts to regulate digital platforms by prescribing registration requirements for SDPs. However, the market watchdog’s jurisdiction, it said, is limited to protecting investor interests and regulating entities explicitly notified as Regulated Entities (REs) under the Sebi Act. 

 

Digital platforms, as defined in the draft circular, do not qualify as REs or intermediaries under the Sebi (Intermediaries) Regulations, 2008, the advocacy group argued. Consequently, Sebi’s attempt to impose such requirements on digital platforms “exceeds” its statutory powers under Section 11(1) of the Act.

 

 It further stated that the draft circular represents an “overreach” of Sebi’s statutory authority and it imposes impractical obligations on intermediaries.

 

 Nasscom echoed these concerns, highlighting the absence of domestic or global precedents. “There is no domestic or global precedent for an approach where obligations are imposed on digital platforms to proactively and pre-emptively screen all content related to securities. The proposed approach imposes disproportionate obligations on platforms which can have unintended consequences,” it said.

 

An email sent to Sebi in this connection did not elicit any response.

 

Currently, a takedown notice or request falls under two sections -- either Section 79 (3) (b) along with 3 (1) (d) of the Information Technology Act or Section 69 (a). There is a third mechanism also wherein the platform may have its own community rules.

 

The USISPF in its letter said: “Existing legal and regulatory frameworks are sufficient to address the concerns outlined in the draft circular. The IT Act already establishes a notice-and-takedown regime, ensuring that platforms comply with lawful removal requests.”

 

Industry players and experts pointed out that Sebi’s expansive definition of content under the draft rules would include user-generated material that isn’t necessarily paid advertising. The proposed norms also grant the regulator final authority in disputes over content or advertisements between entities and platforms.

 

This initiative follows Sebi’s earlier circular to restrict securities market players — such as mutual funds and stockbrokers — from engaging with unregistered entities, including financial influencers.

 

The proposed norms aim to curtail stock manipulation, misleading investment advice, and unauthorised stock and investment recommendations — activities that only registered advisors and analysts are authorised to perform.

 

Earlier this year, a whole-time member of Sebi said the regulator had been successful in removing several thousands of links and content sites linked to unregistered finfluencers or providing unauthorised investment advice. 

Sebi proposals

 

> Platforms must enforce policies against fraud, impersonation, and misleading securities claims

> Sebi’s decisions to be final in content or ad disputes between platforms and entities

> Platforms must remove channels after three violations; blacklist entities after three instances of non-compliance

 

Industry argument

 

> Existing frameworks  sufficient ; Sebi should leverage them

> Clause 8 mandates prescreening all ads, including user-generated content; IT Rules already cover this

> Three-month implementation timeline is too short for compliance