SEBI Panel Proposes Comprehensive Reforms to Address Conflict of Interest Among Top Officials

A SEBI committee has put forward extensive reform proposals aimed at enhancing transparency through increased disclosure requirements and establishing a "zero-tolerance" approach to address conflicts of interest among top officials in India's capital market regulatory body.

The high-level panel has delivered recommendations to SEBI Chairman Tuhin Kanta Pandey that include implementing a secure and anonymous whistleblower system for reporting conflicts of interest, prohibiting expensive gifts, imposing a two-year restriction on post-retirement assignments, and creating a dedicated Chief Ethics and Compliance Officer (CECO) position.

According to the Committee on Conflict of Interest, Disclosures and Related Matters, the SEBI Chairman, whole-time members, and officers at the chief general manager level should publicly disclose their assets and liabilities. Additionally, candidates applying for chairman and member positions, as well as lateral entry roles, must disclose "actual, potential, and perceived conflict-of-interest risks of financial and non-financial nature" to the appointing authority.

The committee has provided a detailed classification of conflicts of interest, categorizing them as financial, relational, professional, duty-related, or perceived. They emphasized that "Adoption of these reforms will align SEBI with international best practices, strengthen its reputation, and reinforce its independence and integrity as India's capital market regulation."

The 98-page report recommends that all SEBI board members and employees should make initial, annual, event-based, and exit disclosures of assets, liabilities, trading activities, family relationships, and other professional and relational interests to the proposed SEBI's Office of Ethics and Compliance (OEC) and the Oversight Committee on Ethics and Compliance (OCEC).

The committee also suggested implementing "induction and refresher training that stresses ethical conduct and fostering a zero-tolerance culture for conflict of interest" and applying uniform restrictions on investments and trading to the Chairman and whole-time members (WTMs), as currently applicable to employees.

Investment restrictions should extend to spouses, regardless of their financial status or whether the investment uses funds from the Chairman/WTM/employee or the spouse's own money, as well as to relatives or other financially dependent individuals. The report states that SEBI members and employees may invest in professionally managed pooled vehicles regulated by financial sector regulators like RBI, SEBI, IRDAI, PFRDA, or IFSCA.

These restrictions would not apply to part-time members due to their limited role and influence compared to WTMs. For post-retirement cooling-off periods, the panel suggested a two-year restriction on SEBI-related assignments while maintaining the existing one-year ban on seeking new employment, which should also include advisory, consulting, or advocacy relationships.

The report, submitted to Pandey on November 10, recommended implementing these measures for SEBI Board Members through a separate set of legally enforceable regulations, unlike the current voluntary code. Currently, the SEBI board under Chairman Pandey consists of two WTMs and two part-time members.

The committee concluded that SEBI's existing conflict of interest and disclosure framework is insufficient and requires strengthening to promote transparency and public trust. In March, the SEBI board decided to establish this committee to comprehensively review existing provisions related to conflict of interest and disclosures of property, investments, liabilities, and other related matters by SEBI members and officials.

This initiative followed allegations against former SEBI Chairperson Madhabi Puri Buch, who was accused of withholding investigations into the Adani group due to conflicts of interest. The committee's responsibilities included reviewing current policies governing conflicts of interest, identifying gaps or ambiguities, and suggesting mechanisms for the public to raise concerns regarding conflicts of interest and disclosures, including a process for examining complaints.

The high-level committee was led by former Chief Vigilance Commissioner Pratyush Sinha as chairman, with Injeti Srinivas as Vice Chairman, and included Uday Kotak, G Mahalingam, Sarit Jafa, and R Narayanaswamy as members.

Pandey's predecessor, Buch, who left office at the end of February, had faced criticism last year from Hindenburg Research, which alleged that she and her husband held "hidden" holdings in Bermuda and Mauritius entities also connected to the older brother of Adani group founder Gautam Adani. These connections allegedly prevented the agency from investigating fraud charges against the powerful conglomerate. Both Buch and the Adani group denied all allegations.