Sebi chair calls for stricter internal controls by banks on insider trading

SEBI chief urges banks to tighten controls, safeguard UPSI, and enforce strict insider trading compliance with zero tolerance on breaches

The Securities and Exchange Board of India (Sebi) Chairman Tuhin Kanta Pandey on Wednesday called for greater internal controls and strict confidentiality of price sensitive information by listed banks in order to prevent insider trading. 

The Sebi chair was addressing managing directors and other key officials of listed banks in a session on Prohibition of Insider Trading (PIT) Regulations. 

Pandey added that if an employee does not require the information for legitimate purposes, they should not have access to it. Further, even informal sharing of information in casual meetings must also be treated as serious breach. 

“Weak controls are considered the prime reason for the frauds,” said the Sebi chief, while emphasising the dual responsibilities on banks for information related to their own bank and those concerning other corporates. 

As banks sanction major loans, are part of debt restructuring negotiations, repayment settlements, and participate in committee of creditors proceeding for stressed assets, they have access to the price sensitive information on other listed companies which could impact the stock prices. 

“Your role as managing directors is not limited to overseeing your bank’s own compliance. It extends to ensuring that information about other companies, which you hold as fiduciaries, is protected with the same rigour and confidentiality as your own organisation’s sensitive data,” stated the Sebi chief. 

He stated that every piece of unpublished price sensitive information (UPSI) should be accounted for, and every disclosure should be timely and accurate, and employees must have codes of conduct and written policies on the same. 

The Sebi chair’s comments come at a time when the regulator is probing alleged insider trading and delayed disclosures in the IndusInd Bank matter. 

“In today’s hyper-connected world, a single leak can travel across digital networks in seconds and there is no way to undo the damage to stock prices, to investor confidence, or to your bank’s reputation,” said Pandey, calling for strict access protocols, information walls, and secure digital systems. 

“When a regulatory authority comes knocking, your ability to instantly and comprehensively demonstrate who knew what, and when, will be your greatest defence,” said Pandey, stating that Sebi views SDD non-compliance with zero tolerance. SDD refers to Structured Digital Database, a tool used for sharing UPSI by listed entities. 

Sebi also held separate sessions with compliance officers of the banks on their roles and best practices to prevent insider trading.