Sebi approves tighter conflict-of-interest and disclosure framework

The Securities and Exchange Board of India (Sebi) on Monday approved a comprehensive overhaul of its framework governing conflicts of interest, disclosures, code of conduct, and recusal norms for employees, including the chairman and whole-time members (WTMs).

 

The recommendations made by Sebi’s high-level committee will now be referred to the central government. However, Sebi Chairman Tuhin Kanta Pandey said the regulator will voluntarily implement the measures even before formal amendments are notified.

 

While taking charge last year, Pandey had outlined the review of the code of conduct as his priority. This followed concerns and allegations raised on the former chairperson.

 

 

As part of the revamp, immoveable property details of the chairman, WTMs, executive directors, and chief general managers may be publicly disclosed, in line with norms applicable to central civil services and All India Services officers. Sebi will also introduce a digital system and a formal recusal framework to record disclosures of conflicted relationships and track recusal decisions.

 

New investments in pooled vehicles will be permitted, provided they are professionally managed by regulated market intermediaries. Upon assuming office, the chairman and WTMs will have the option to liquidate, freeze, divest through a trading plan, or sell investments with prior approval.

 

The chairman and WTMs will now be classified as ‘insiders’. The definition of “family members” has also been expanded to include spouses, dependent children, legal wards, and relatives by blood or marriage.

 

Restrictions will be imposed on direct equity investments by family members, except in unlisted securities, employee stock ownership plans forming part of compensation, and discretionary portfolio management services. These restrictions will apply prospectively, with existing holdings grandfathered.

 

Sebi has also capped exposure to a single intermediary at 25 per cent of the portfolio. Members will be required to either liquidate or freeze such holdings during their tenure, including in unlisted commercial ventures. Vested stock options must be exercised prior to joining.

 

Separately, Sebi approved the netting of funds for foreign portfolio investors for outright cash market transactions, to be implemented by December 31, 2026. The move is aimed at reducing costs and operational challenges such as foreign exchange slippages, particularly during index rebalancing. However, such transactions will continue to be settled on a gross basis.

 

The regulator also relaxed the “fit and proper person” criteria for intermediaries, removing automatic disqualification upon the initiation of an economic offence probe; disqualification will now arise only upon conviction. The decision comes amid multiple legal challenges to the existing provisions.

 

In addition, Sebi expanded investment avenues for infrastructure investment trusts (Invits) and real estate investment trusts to mitigate concentration risks. These entities will now be allowed to invest in units of liquid mutual fund schemes with a credit risk value of at least 10 (currently 12), under Class A-I or B-I categories.

 

Privately placed Invits will be permitted to invest up to 10 per cent of asset value in greenfield infrastructure projects.

 

In a move aimed at boosting retail participation in the social stock exchange, Sebi reduced the minimum investment requirement for individual investors in social impact funds under alternative investment funds from ₹2 lakh to ₹1,000. 

Inside the revamp 

• Stricter investment restrictions for Sebi chairman, WTMs
• Mandates disclosure of assets, liabilities and future job negotiations
• Allows AIFs to retain liquidation proceeds beyond fund life, under defined conditions 
• Min investment size cut to ₹1,000 from ₹2 lakh for social impact funds
• No automatic disqualification of intermediaries for pending FIRs or complaints