SEBI's new ad code brings finfluencers, AI avatars under celebrity rules

The Securities and Exchange Board of India (SEBI) has proposed a new Common Advertisement Code (CAC) that would classify finfluencers and AI-generated virtual avatars as celebrities for advertising purposes, marking a significant shift in how financial services firms can engage creators and influencers.

The proposal, released through a consultation paper on June 23, seeks to replace multiple advertising frameworks applicable to market intermediaries with a single code. The draft applies to stock brokers, investment advisers, research analysts, portfolio managers, mutual funds, online bond platforms and other regulated entities.

While positioned as an advertising reform, the proposal reflects SEBI's growing concern over the role of influencers and digital personalities in shaping investment decisions.

Under the proposed framework, influencers with more than 5,00,000 followers on a single social media platform would be treated as celebrities. The definition also extends to sportspersons, television hosts, reality show participants and virtual characters that display human-like traits and influence audiences.

The move comes after a series of enforcement actions against unregistered finfluencers and investment educators. Since 2024, SEBI has tightened scrutiny of social media-driven financial promotions, barred regulated entities from associating with unregistered finfluencers and mandated disclosure of registration details in promotional content.

The latest proposal seeks to place creator-led financial advertising under the same compliance standards that apply to celebrity endorsements.

Under the draft rules, celebrities would be allowed to promote a regulated entity or its brand but would not be permitted to make claims about specific financial products or services. Any advertisement featuring celebrities would continue to require prior approval, even as SEBI proposes removing pre-approval requirements for most other forms of advertising.

The proposal could have implications for brokers, investment platforms and wealth management firms that have increasingly relied on creators to reach younger investors. Over the past few years, financial brands have shifted marketing budgets toward YouTube creators, Instagram influencers and finance-focused content creators who often command higher audience trust than traditional celebrity endorsers.

The consultation paper also introduces restrictions on digital marketing practices commonly referred to as dark patterns. The proposed code would prohibit tactics such as false urgency, forced actions and subscription traps, aligning securities market advertising with the Central Consumer Protection Authority's dark pattern guidelines.

The inclusion of dark patterns signals SEBI's intent to expand oversight beyond advertising claims and into user acquisition and engagement practices used by financial platforms.

The draft also bars guaranteed-return claims, testimonials, unfair comparisons with competitors and incentives aimed at encouraging trading activity or app downloads. Regulated entities would not be allowed to offer vouchers, coupons or similar rewards linked to opening accounts, reviving dormant accounts or increasing trading participation.

Another notable provision relates to AI-generated personalities. By explicitly including virtual characters within the definition of celebrities, SEBI appears to be anticipating the growing use of AI avatars and digital influencers in marketing campaigns.

The proposal arrives at a time when brands across sectors are experimenting with AI-generated brand ambassadors and virtual influencers. If adopted, financial firms using such characters in advertising would face the same compliance obligations applicable to human celebrities.

SEBI has also proposed replacing mandatory pre-clearance for most advertisements with a post-publication reporting mechanism. Market intermediaries would be required to upload advertisements or advertisement links to a centralised portal within 24 hours of publication. Supervisory bodies would review advertisements after publication and report violations to the regulator.

The consultation paper raises broader questions about the future of creator-led financial marketing. While the draft seeks to regulate advertisements commissioned by regulated entities, independent finfluencers who promote stocks or investment ideas without a commercial arrangement may continue to remain outside the scope of the advertising code.

The regulator has invited public comments on the proposal until July 14. If implemented, the framework could become one of the most significant regulatory interventions in India's creator-led financial advertising ecosystem, bringing influencers, celebrities and AI-generated personalities under a common compliance structure.