Sebi Proposes Permitting Celebrity Endorsements For Financial Intermediaries

The Securities and Exchange Board of India (Sebi) is considering a proposal to allow celebrity endorsements for market intermediaries and regulated entities to promote their brands.

The new code indicates a shift in how financial firms market themselves to investors. Sebi has also proposed other reforms which seek to modernise promotional practices while maintaining supervision.

Sebi’s Key Proposals Regarding Advertising

In a consultation paper released on June 23, Sebi has proposed a unified Common Advertisement Code (CAC) to replace existing entity specific advertisement frameworks. Presently stock brokers, depository participants, investment advisers, research analysts, online bond platform providers, portfolio managers, and mutual funds are governed under different sets of rules. However, now Sebi has proposed embedding the new unified code into the Sebi Intermediaries Regulations, 2008 to standardise practices across the financial services sector.

Sebi's Rules Governing Celebrity Endorsements

Under the new framework, market intermediaries will be allowed to approach celebrities for endorsements exclusively for brand level or entity level promotion. According to the rules, while a celebrity can endorse a financial firm as a whole, their involvement remains subject to strictly prescribed conditions and requires prior regulatory approval. Additionally, celebrities are prohibited from endorsing specific investment products, mutual fund schemes, or portfolio strategies.

"Use of celebrities for brand-level/entity-level promotion is proposed to be permitted, subject to prescribed conditions and prior approval," Sebi said.

Through the regulation, Sebi aims to ensure that high profile personalities are not used to misrepresent individual performance metrics, maintaining a clear line between general corporate brand visibility and specific promotional content.

Sebi has also proposed to remove the requirement of prior approval for standard advertisements. Instead, the regulator is transitioning to a post issuance reporting mechanism.

If the proposal is accepted, regulated entities will be allowed to publish their advertisements first, provided they report them to a supervisory digital platform within 24 hours of issuance. However, any marketing material featuring a celebrity will remain an exception and must receive regulatory clearance before release.

"Mandatory prior approval is proposed to be replaced by post-issuance reporting within 24 hours," Sebi said. 

Sebi has also proposed the formation of a centralised common reporting portal to handle all advertisement submissions seamlessly. Additionally, the definition of an advertisement is being revised to remove ambiguity, separating promotional content from routine, factual, or investor service communications.

To provide additional guardrails, the code also introduces a ban on 'dark patterns'. Notably, dark patterns refer to misleading user-interface designs on digital platforms that try to trick investors into unintended financial decisions.

The framework also introduces the recognition of ratings and rankings assigned by the Past Risk and Return Verification Agency, allowing firms to advertise verified performance data.

Sebi has also included a list of communications which are entirely exempt from the code. Educational content and investor-awareness campaigns will face no promotional restrictions, provided there is no underlying marketing intent or solicitation.

How Can Sebi’s New Code For Ads Impact Investors?

Through the introduction of the new code, Sebi seeks to establish a framework that balances the ease of doing business with robust investor protection.

"...unified technology-enabled advertisement framework to balance ease of doing business with investor protection," Sebi said.

For regular investors, this change will likely increase transparency, by standardising performance claims through verified agencies and clearly separating factual service notices from marketing campaigns.