Sebi panel seeks overhaul of conflict-of-interest, disclosure norms

A Sebi committee led by former vigilance chief Pratyush Sinha has proposed mandatory asset disclosures, tighter investment rules, and an ethics oversight system for top officials to prevent conflicts

All board members and staff of the Securities and Exchange Board of India (Sebi) will be required to declare their assets, liabilities, trading activities, and relevant relationships at multiple stages — at the time of appointment, annually, upon key events, and at exit. 

This is part of a series of recommendations by a high-level committee constituted by the markets regulator in a bid to overhaul conflict-of-interest and disclosure rules. 

Applicants to board or senior lateral positions will also need to disclose any actual, potential, or even perceived conflicts of interest, spanning both financial and non-financial matters. 

The definition of ‘family’ for disclosure and conflict management purposes will be significantly expanded. It will now include a Sebi board member’s or employee’s spouse, dependent children, anyone for whom they act as legal guardian, and any other blood or marital relatives who are financially dependent on them. 

The panel was chaired by Pratyush Sinha, former chief vigilance commissioner, with Injeti Srinivas, former secretary, Ministry of Corporate Affairs, and ex-IFSCA chairman, as vice-chairman. 

Sebi had constituted the committee at its March 2025 board meeting, the first under current Chairperson Tuhin Kanta Pandey. The appointments came amid allegations of conflicts of interest raised by now-defunct Hindenburg Research against Sebi’s former chairperson Madhabi Puri Buch.

 

The committee has noted that Sebi’s existing framework on conflict of interest and disclosures is inadequate and requires strengthening to bolster transparency and public confidence in the regulator. 

The proposed framework aims to plug these gaps and align Sebi’s practices with international standards. It has also introduced a provision empowering any individual, on reasonable grounds, to file a complaint against a Sebi board member. 

The Sinha-panel had advocated public disclosure of assets and liabilities by the chairperson, whole time members (WTMs), and employees at the chief general manager level and above. Part-time members (PTMs), however, may be exempt, acknowledging their limited role in Sebi’s day-to-day regulatory functions.

 

Acknowledging that senior Sebi officials, particularly those appointed from outside the government, might hold equity or equity-linked instruments, such as employee stock options (ESOPs), the panel has suggested a set of compliance options for the chairperson and WTMs. These include liquidating the investments, freezing them, selling them under a pre-approved trading plan, or selling them without a plan but with prior approval.

 

The panel has also proposed that any new investments by Sebi’s top officials be made in regulated, professionally managed pooled schemes, capped at 25 per cent of personal portfolios. PTMs could be exempt from these restrictions but would still be barred from trading on the basis of unpublished price-sensitive information.

 

These investment restrictions would extend to spouses and financially dependent relatives, regardless of the source of funds. The draft framework lays out options for incoming senior officials to manage existing investments, including liquidation, freezing, or trading under a pre-approved plan.

 

Notably, the chairperson and WTMs would fall under the definition of “insider” in Sebi’s insider trading norms, cementing their obligation to avoid misuse of confidential information.

 

To further deter conflicts, the committee has recommended a ban on accepting gifts connected to official dealings, subject to a small-value threshold for tokens received at public functions.

 

Sebi has also urged Sebi to publish an annual summary of recusals by senior officials, establish an office of ethics and compliance headed by a chief ethics and compliance officer, and create a dedicated oversight committee.

 

Other proposals include deploying AI-enabled monitoring systems to detect and flag conflicts of interest, and instituting a secure, anonymous whistle-blower mechanism for Sebi staff, market intermediaries, and the public.

 

The panel has recommended a dedicated training and certification programme on ethical conduct for all levels within the regulator.

 

To give the new rules teeth, the committee has proposed a separate, enforceable set of regulations for Sebi board members, replacing the largely voluntary code in place now. Amendments to Sebi (Employees’ Service) Regulations, 2001, would give effect to the new mandates for staff.

 

The panel has also recommended that the Sebi board set up a formal oversight structure that could include an office of ethics and compliance and an oversight committee on ethics and compliance. 

Transparency push

• Expert group holds Sebi’s existing framework on conflict of interest and disclosures inadequate
• Suggests slew of measures to bolster transparency and public confidence in the regulator
• Senior staffers to disclose any actual, potential or even perceived conflicts
• Chairperson, WTM to liquidate, freeze their equity investments