Sebi Introduces Common Ad Code Allowing Celebrity Endorsements for Market Intermediaries

The Securities and Exchange Board of India (Sebi) has unveiled a unified advertising framework for market intermediaries, permitting the use of celebrities to promote regulated entities at the brand or organizational level. This move is intended to standardize promotional activities while maintaining investor protection and transparency.

The newly notified Common Advertisement Code (CAC), effective from October 8, applies to a broad spectrum of entities under Sebi's supervision, including stock brokers, depository participants, investment advisers, research analysts, portfolio managers, online bond platform operators, and mutual funds or asset management companies. These entities will now be able to engage celebrities to endorse their overall brand or entity but with crucial restrictions.

According to Sebi's notification, endorsements by celebrities must not promote or imply inducements related to any specific financial product or service offered by the entity. This restriction aims to avoid misleading investors with promises or claims tied to particular offerings. Any advertisement featuring celebrity endorsements will require prior approval from the relevant supervisory authority or Sebi itself if no such body exists for the regulated entity.

One significant aspect of the new code is the financial treatment of celebrity endorsements. Sebi has mandated that costs associated with such endorsements cannot be transferred to clients or charged to mutual fund schemes. This provision is designed to protect investors from bearing the burden of marketing expenses indirectly.

Advertisements under this code must also carry appropriate disclaimers as specified by Sebi, ensuring clarity and transparency for investors. When advertisements include ratings or rankings, they must be sourced from a Past Risk and Return Verification Agency (PRRVA) and meet strict guidelines. The ratings have to be explained within the advertisement or through links directing investors to detailed explanations on the agency's website or the regulated entity’s official site.

Sebi emphasizes that ratings or rankings should only be one factor considered by investors when deciding to engage with a regulated entity. To maintain fairness and objectivity, ratings must derive from studies or surveys that cover all market participants in a relevant category, facilitating meaningful comparisons.

Importantly, the regulator has excluded purely educational content without promotional intent from coverage under the advertisement code, allowing entities to educate investors without regulatory constraints tied to advertising.

Given the rise of digital communication, Sebi has introduced provisions for abbreviated disclosures in formats like SMS, push notifications, and pop-ups. Because of character limits on these platforms, entities can provide hyperlinks to full risk disclosures on their official websites, ensuring necessary information remains accessible without overloading concise messages.

"In case an advertisement is in the form of short format messaging such as SMS or Pop-ups, push notifications or any other similar concise electronic communication, and basic details and disclaimers cannot be provided therein due to the character limit associated with the medium, a hyperlink to such details and disclaimers available on the official website of the regulated entity shall be provided," the notification states.

To implement these changes, Sebi has amended the intermediaries regulations accordingly. Additionally, in a separate amendment, Sebi has relaxed requirements for research analysts and research entities regarding the maintenance of call recordings for communications with institutional investors. This easing of compliance obligations is expected to improve operational efficiency and reduce administrative burdens in the research sector.

This comprehensive update reflects Sebi’s ongoing efforts to enhance transparency, investor protection, and regulatory clarity within India’s financial markets. By permitting celebrity endorsements with clear guardrails and updating disclosure norms for digital platforms, Sebi aims to foster responsible advertising practices while adapting to evolving communication methods.

These regulatory adjustments come at a time when financial markets continue to expand their outreach efforts to attract a wider investor base. Clear guidelines such as the Common Advertisement Code help create a level playing field for market participants and help investors make more informed decisions by ensuring that promotional content remains accurate and balanced.