Sebi Proposes Framework For Recognizing Specified Digital Platforms

The Securities and Exchange Board of India has issued a draft circular for public consultation inviting feedback on recognising digital platforms as Specified Digital Platforms. This one measure ensures that such digital platforms are not used for illegal securities-related activities, such as by unregistered entities advertising unauthorised or unsustainable claims regarding securities.

Now, a draft circular will outline an all-around framework under which Specified Digital Platforms are recognized while giving a fillip to preventive measures to protect investors. According to Sebi, such recognitions would be crucial to prevent unregistered entities from the securities space. The August 2024 amendments to the regulations of Sebi had been ushered in for such purposes as the prohibition of advising on securities or claims of performance without proper registration induces such issues.

One of the most distinguished features of the proposed framework is that once a platform is identified as an SDP, all the bans on associated activities with unregistered entities would not apply to that recognized SDP. In other words, this makes the recognized SDPs eligible to act as platforms for securities-related content and advertisements since they conform to strict preventive and curative measures. Platforms seeking recognition under this framework must demonstrate sound mechanisms to ensure compliance with the regulations of Sebi.

There are circulars outlining different preventive measures, such as using newer technologies like AI and ML to track content, thereby stopping impersonation or fraud. Platforms will be mandated to closely work with Sebi, share relevant market data, and act on guidance from time to time. This would include keeping an openly defined policy to prevent violation of securities and proper verification of entities dealing on the platform.

The draft circular focuses on curative measures if preventive measures prove to be inadequate. Escalation and reporting systems for violations on the digital platforms must include flagging of fraudulent, illegal content; mechanisms for blacklisting must also track habitual offenders so the scammers do not continue to misuse the facility.

Digitally based platforms that intend to be identified as SDPs, and the applications of such plans will have to be made within three months from the issuance of this circular. Sebi believes that this framework will create a safer investment environment for investors because misuse of such platforms for unauthorized securities-related activities will be checked.

The focus of Sebi on the technology-based solution in collaboration with the platforms is likely to increase transparency and investor protection in India's securities market. This is part of the initiatives undertaken by Sebi toward modernizing and securing the digital financial ecosystem while addressing the existing risks generated by online platforms. Setting clear standards for recognition as an SDP, Sebi hopes that in the digital space, investors will get accurate, reliable, and authorized information.