The Information and Technology Act, 2000 (IT Act) already addresses the concerns of the Securities and Exchange Board of India (SEBI) in curbing financial disinformation, Puneeth Nagaraj, a partner in Shardul Amarchand Mangalda’s public policy and regulatory team. & Co said during MediaNama’s recent event, ‘SEBI Platform and Influencer Regulations’. Nagaraj did this in connection with SEBI’s latest consultation document calling on specified digital platforms to prevent content (including advertising) related to securities fraud, identity theft, claims from unregistered entities and the presence of unregistered entities.

“We’ve been here before with a lot of other regulators as well. We’ve done e-commerce, we’ve done consumer protection, as you mentioned at the beginning. I think what seems to be happening is that every regulator now comes to a problem and tries to start from beginning, try to resolve it,” Nagaraj said. He added that platforms are not responsible for third-party content (for both ads and user-generated content) under the IT Act.

When MediaNama editor Nikhil Pahwa pointed out that SEBI’s proposed regulations do not hold platforms accountable, Nagaraj argued that the challenge then becomes: What happens to platforms that do not want to become Specified Digital Platforms (SDPs) under SEBI? “There are two ways of looking at it. One is to say that SEBI’s framework does not regulate me. But on the other hand, the regulation also gives you all the powers, no doubt. And it becomes an obligation for you to go and then fight them decisions are made and the process itself becomes a punishment,” he explained.

Is there even a need for sector-specific platform regulation?

Nagaraj questioned what special reason SEBI had to regulate platforms, given that the IT ministry is already doing so. He gave the example of the Misleading Advertisements Regulation (Legal Metrology Rules, 2011) under the Consumer Protection Act and explained that under this regulation advertisers must provide information about the products they are marketing. “The CCPA has the power to go directly against the advertisers. So if another regulator has been able to do this, there is no reason why stocks or securities are any different. There is no argument why SEBI, especially if it seems to envision a scenario where all must be registered with SEBI as well, why can’t they go directly against the content creators?” he asked.

Nagaraj also touched on 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 that you look through possibly any content or any content that relates to information about the financial sector and then sift through that before allowing the platform,” explained he Nagraj added that this would mean that the platform is no longer an intermediary as intermediaries do not interfere with the content on their platforms.

Why shouldn’t platforms face consequences?

SEBI’s proposed framework states that SEBI-registered entities may not associate with unregistered financial influencers (fin-fluencers) unless the entities associate with unregistered individuals through a specified digital platform. SEBI-registered entities include stock exchanges, recognized clearing houses and registered depositories and their agents. “Why shouldn’t platforms that don’t follow SEBI’s guidelines face the consequence that a SEBI-registered entity won’t advertise with them?” asked Pahwa Nagaraj.

Nagaraj replied that the definition of platforms under SEBI’s proposed regulation is so broad that it includes websites or even television channels. He emphasized that unlike TV channels or newspapers, intermediaries have no control over the content people post on their services. “If you’re dealing with the content that only allows 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 can read the news and you can have ad pop-ups that relate to, say, information about the financial sector, any information. A lot of times they don’t even know what ads are being placed on the platform. It’s usually done through third-party ad tech platforms,” ​​he pointed out.

He argued that it is not correct to say that only one company profits from advertising on a platform. Furthermore, he emphasized that platforms do not have all-encompassing technical solutions to problems. “There is a perception among Indian regulators, MeitY (Ministry of Electronics and Information Technology) has also been guilty of this to suggest that there is a technological solution to everything. You implement technology, it finishes the job and everything is done. It is not that easy. And what we should always worry about is the second-order effects of doing something like this,” Nagaraj said.

Concerns about rule 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 cooperation between regulators. “But we should also be kind to the regulators to admit that they cannot completely eliminate the overlap either,” he added.

Nagraj mentioned that the way courts approach things is that they try to read different rules in a harmonious way. “The issues arise when there is a very apparent contradiction where essentially following one law will create problems with another framework, where someone has overstepped their bounds, for example. Unfortunately, in the current case, we are dealing with a situation where it has happened, he says.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.However, SEBI through its proposed framework regulates influencer advertising on the platform, adding that this basically goes into MCA, MIB and MeitY territory all at once.

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Nagaraj said that in this situation, regulators need to ensure that they tailor their regulation. Taking the example of the telecom regulator’s spam regulation, he explained that the regulator took it up because SEBI and the Reserve Bank of India (RBI) had flagged problems with spam. “Finally the DoT stepped in and regulated how people send commercial communications over phones,” he added. Similarly, with respect to the e-commerce regulation MeitY and the Department for Promotion of Industry and Internal Trade. “What they’ve all managed to do to some extent, I’m not saying it’s a perfect solution, is to recognize the safe harbor that exists. Make sure you don’t completely disregard frameworks that exist,” he said.

How regulators can go about apportioning responsibility:

Nagraj added that regulators have a piecemeal way of dividing their roles and the Supreme Court has given guidelines for that. “If you watch The case of TRAI (Telecom Regulatory Authority of India) vs CCI (Competition Commission of India).The Supreme Court did not completely overstep the role of CCI nor did it completely overstep the role of TRAI,” he explained. Regarding SEBI’s current regulatory framework, he mentioned that SEBI could have worked with the Ministry of Consumer Affairs. “It’s not the best example, but if you look at the intermediary guidelines and you can question the legality of it, they found a way to shoehorn the MIB’s concerns,” Nagaraj said.

Is a 24-hour content removal timeline feasible?

SEBI’s framework requires platforms to proactively remove content that violates securities regulations and those impersonating SEBI officials. “I’m confused when this 24 hours starts. If it’s based on a user report, sure. Depending on the scale of how a platform adopts, you can figure out how to comply with the regulatory order,” said Tamogna Goswami, head of policy for Sharechat, during the event.

Goswami mentioned that platforms need clarity on when the clock starts and what content platforms need to act on. “If it’s not clearly stated, ‘this is what a security breach looks like,’ let’s say if it’s a fraudulent practice of running ahead or something like that, if I’m not clear on that, there will be three layers by moderators it will have to go through because we don’t always want to put down content that might be useful to any user,” she explained. Platforms need more than 24 hours to get content through these three layers of checks, she argued.

What happens to r/wallstreetbets under the SEBI framework?

r/wallstreetbets is a community on Reddit where people discuss stories related to stock/securities trading. When asked whether this community would have to be shut down as a result of SEBI regulations, Nagaraj said the decision to shut it down would be based on what the platform wants to do. “SEBI will not shut it down. The pressure will be on the platforms. Then you have to ask whether the platform in this case will be a specified digital platform,” he mentioned, adding that SEBI has completely outsourced regulatory implementation to platforms.

What measures do platforms already have in place to curb financial misinformation?

Goswami mentioned that when an ad tech platform takes an ad and publishes it on social media, it has checks and balances in place. If the ad does not pass these checks, it will not be published. This level of control occurs at the level of the ad technology platform. On the User Generated Content page, the user has the option to report fraudulent content. “Let’s say if some magical cure is put out and if they believe it and someone tries to charge money for it, they have the ability to report the same. There are moderators who will react to that in terms of the internal rules provided” , she said.

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