A High-Level Committee (HLC) chaired by former Chief Vigilance Commissioner Pratyush Sinha has proposed a far-reaching revamp of Sebi’s framework for managing conflicts of interest and disclosures by its Board members and employees.
The panel concluded that Sebi’s existing code is inadequate and inconsistent and must be replaced with a legally enforceable, technology-driven ethics regime. The committee had submitted its report to Sebi chairman Tuhin Kanta Pandey on November 10, and the report was made public the next day.
The committee report said, “All Board Members and employees should make initial, annual, event-based, and exit disclosures of assets, liabilities, trading activities, and family relationships as well as other professional and relational interests to SEBI’s proposed Office of Ethics and Compliance (OEC) and the Oversight Committee on Ethics and Compliance (OCEC).”
Public Disclosure of Assets and Liabilities
The HLC also suggested that applicants for the position of Chairman and Members, and for lateral entry positions, must disclose actual, potential, and perceived conflict-of-interest risks of financial and non-financial nature to the appointing authority. It further recommended that the Chairman, WTMs, and Sebi employees at the level of CGM and above should be mandated to make a public disclosure of their assets and liabilities statement. Part-time Members of Sebi may be exempted from this requirement, as they do not handle Sebi’s day-to-day regulatory activities, suggested the HLC.
Expanded Definition of Family and Relative
The HLC called for a uniform definition of “family” for Members and employees - definition of “relative” aligned with the Companies Act, 2013, and Sebi LODR, 2015, for disclosure and recusal purposes - and an obligation to disclose close associations, including close friends and professional relationships. The HLC said Sebi should establish a secure, technology-based, state-of-the-art system that incorporates artificial intelligence and data analytics to prevent, predict, detect, and address conflicts of interest.
Uniform Investment and Trading Norms
The High-Level Committee (HLC) has proposed uniform investment and trading restrictions for SEBI’s Chairperson, Whole-Time Members (WTMs), and employees under the Sebi Employee Service Rules. Members and staff may invest only in professionally managed pooled schemes regulated by financial sector regulators. Part-time Members will be exempt but must disclose holdings and avoid trading on Unpublished Price-Sensitive Information (UPSI). The curbs extend to spouses and financially dependent relatives, regardless of whose funds are used. ESOPs and unlisted private business holdings of spouses are exempt. Upon joining, the Chairperson and WTMs can choose to liquidate, freeze, or sell existing investments with or without a trading plan.
Chairman, WTMs to Be Considered as ‘Insiders’
The HLC also said the Chairman and the WTMs should be brought within the definition of “insider” for the purpose of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015. The Committee observed that employees face stricter restrictions (prohibition on equity investments, annual asset disclosures, deemed “insider” status), whereas Members have narrower disclosure obligations and fewer restrictions.
A Robust Framework for Recusal
The HLC has suggested a robust framework for recusal from cases. Though the primary onus of identifying and declaring a conflict of interest lies with the individual, the digital repository of financial and non-financial disclosures must be capable of flagging actual, potential, and perceived conflicts of interest based on materiality considerations. A summary of recusals by the Chairman, WTMs, PTMs, and SEBI employees at the level of Chief General Manager and above should be published in Sebi’s Annual Report.
Institutional Arrangement for Oversight
The High-Level Committee also said the Sebi Board should establish an institutional arrangement for oversight consisting of (1) an Office of Ethics and Compliance (OEC) along with a new position in the rank of Executive Director, who will function as the Chief Ethics and Compliance Officer (CECO), and (2) an Oversight Committee on Ethics and Compliance (OCEC).
Confidential and Anonymous Whistle-blower System
The HLC also advocated establishing a secure, confidential, and anonymous whistle-blower system for reporting actual, potential, or perceived conflicts of interest by Board members, employees, and external stakeholders, including market infrastructure institutions, market intermediaries, market participants, and the public.
Post-Retirement Restrictions
The HLC suggested a two-year ban on appearances before or against SEBI, and disclosure of negotiations for future employment. It observed that, in India, post-retirement cooling-off restrictions vary. The IRDAI, the PFRDA, and the IFSCA impose a two-year cooling-off period for board members. This restriction specifically applies to association with entities regulated by the authority. Other regulators and the civil services follow a one-year cooling-off period.
Ethics Training Programs for Board Members and Staff
The HLC also stressed that Sebi should design and deliver training and development programmes to foster a culture of ethical conduct among both Board members and employees. The programmes should be tailored to the various levels and functions within SEBI, and they must include testing of knowledge, understanding, and application as an integral part of the framework.
Need for a Legally Enforceable Code
The HLC said the recommendations for Sebi Board Members may be implemented by notifying a separate set of Regulations for Sebi Board Members for Disclosures and Management of Conflict of Interest. This would make it legally enforceable, unlike the current Code, which is more akin to voluntary adoption. As regards employees, the HLC said the Sebi Board has the power to make the necessary amendments to the Sebi (Employees’ Service) Regulations, 2001.
The HLC held wide consultations with stakeholders, including former Sebi leaders, current staff, legal experts, journalists, market intermediaries, and regulated entities.
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