Sebi proposes celebrity endorsements, common ad code for entities

Regulator proposes a Common Advertisement Code across intermediaries and may permit celebrity endorsements at the entity level with prior approval

The Securities and Exchange Board of India (Sebi) on Tuesday proposed allowing celebrity endorsements for its regulated entities (REs) like asset management companies (AMCs), stock brokers, investment advisors, and others in its overhaul of advertisement codes.

 

Such celebrity endorsements will require prior approval from the regulatory body or exchanges.

 

However, Sebi may allow celebrity endorsements only at the brand or entity level and not for endorsing their products or services.

 

“While a brand endorsement merely reflects a general association with the entity, endorsement of a particular product or service may unduly influence investors’ decisions by creating perceptions regarding its suitability or expected outcomes,” said Sebi in a consultation paper on Tuesday. 

 

It added that the restriction will strike a balance between legitimate marketing objectives like visibility and financial inclusion with investor protection.

 

The regulator is also planning a common advertisement code (CAC) to facilitate common applicability and standards across its REs in contrast to the current practice of different frameworks for each category of intermediary. The CAC is proposed to be adopted as a chapter to the Sebi (Intermediaries) Regulations, 2008.

 

The code specifies the definition of advertisement, celebrity, supervisory body along with clarification on mandatory disclosures, and communications different from advertisements.

 

It specifies metrics for considering someone a celebrity. Further, it prohibits use of dark patterns, as specified by the Central Consumer Protection Authority. It also prohibits false claims and misleading testimonials, any promise of fixed returns, comparison of products or asset classes, usage of logos of regulator or stock exchanges, among others.

 

The requirement for prior approval for exchanges in case of stock brokers and online bond platform providers (OBPPs) and from supervisory bodies in case of investment advisors and research analysts is proposed to be removed.

 

Any non-compliance could lead to action by the regulator.

 

Sebi is planning to replace it by the post-issuance reporting model where the reporting is done within 24 hours of the issuance of such advertisement.

 

It also proposed to permit usage of ratings and rankings assigned by the Past Risk and Return Verification Agency (PaRRVA) in advertisements. It would be subject to disclosures to maintain balance in commercial need and investor protection.

 

Sebi noted that the current codes require comprehensive disclaimers in every advertisement—which may not be practical for short format messaging forms or content such as SMS, pop-ups, push notifications. It added that unreadable fine print fails the transparency objective. It has proposed allowing usage of abbreviated disclosures and hyperlink for detailed disclaimers.

 

Sebi has proposed a transition period of six months from the date of notification for the CAC to be applicable.

 

Such consultation papers are open to public comments following which they are usually taken up in the board meetings — followed by a notification once approved.

 

The proposal follows long-pending demands by the industry players who have at several intervals sought relaxations.

 

“Subjecting each item to prior approval is neither efficient nor effective. Delays associated with obtaining prior approval may also erode the topical relevance of advertisement with time sensitive content and may render them ineffective,” the regulator added.