Why in the News?

• A SEBI-appointed High-Level Committee has recommended public disclosure of assets, investment restrictions, and post-retirement curbs for senior officials to prevent conflicts of interest and enhance institutional transparency.

What’s in Today’s Article?

• SEBI Committee (Background, Need for Reforms, Key Recommendations, International Alignment, Implementation & Next Steps)

Background

• The Securities and Exchange Board of India (SEBI) is set to introduce a new era of transparency and accountability within the organisation.
• A High-Level Committee (HLC) formed by SEBI to review conflict-of-interest policies has recommended significant reforms, including mandatory public disclosure of assets and liabilities by its chairperson, whole-time members (WTMs), and senior officials at the chief general manager (CGM) level and above.
• The panel, led by former Chief Vigilance Commissioner Pratyush Sinha, has presented 10 recommendations.

Need for Reforms

• The creation of the committee in March 2025 followed allegations by Hindenburg Research against former SEBI Chairperson Madhabi Puri Buch and her husband, involving potential conflicts of interest in offshore investments.
• Although the couple denied all allegations, the episode triggered a public debate on ethical standards and transparency within financial regulators.
• To address these concerns, SEBI constituted the six-member HLC to overhaul its internal ethics framework, drawing inspiration from global best practices in regulatory governance, such as those followed by the U.S. SEC (Securities and Exchange Commission) and the U.K. Financial Conduct Authority.

Key Recommendations of the High-Level Committee

• Public Disclosure of Assets and Liabilities
  • The panel proposed that the chairperson, whole-time members (WTMs), and SEBI officers at the CGM level and above should publicly disclose their assets and liabilities.
  • This includes movable and immovable properties, investments, and liabilities.
  • All other SEBI employees, including contractual staff, must file internal disclosures of their assets, relatives’ relationships (as defined under the Companies Act, 2013), and any professional or financial interests that may pose potential conflicts.
• Mandatory Conflict-of-Interest Declarations
  • Applicants for top SEBI positions must declare all actual, potential, or perceived conflicts of interest, both financial and non-financial, during the appointment process.
  • These disclosures will enable the appointing authority to assess ethical suitability and mitigate risk before the appointment is finalised.
• Investment Restrictions and Trading Controls
  • The committee recommended uniform restrictions on personal investments and trading by the SEBI chairperson, WTMs, and employees.
  • New investments can be made only in professionally managed pooled funds regulated by the Indian financial sector authorities.
  • At the time of joining, senior officials must choose from four options for existing investments:

• Liquidate the investment
• Freeze the investment
• Sell under a pre-approved trading plan
• Sell without a trading plan after obtaining SEBI approval
• Additionally, the chairperson and WTMs should be classified as “insiders” under the SEBI (Prohibition of Insider Trading) Regulations, 2015, making them subject to strict disclosure and trading restrictions.

• Expanded Definition of ‘Family’
  • To ensure consistency between the SEBI Code of Conduct (2008) and the SEBI Employees’ Service Regulations (2001), the HLC proposed a broader definition of ‘family’. The term would now include:

• Spouse and dependent children,
• Individuals for whom the official acts as a legal guardian, and
• Any person related by blood or marriage who is substantially dependent on the employee
• This change aims to eliminate ambiguity in assessing conflicts arising from family-linked financial interests.

• Gift and Recusal Policy
  • The panel recommended a blanket prohibition on accepting gifts, directly or indirectly, from individuals or organisations having or likely to have official dealings with SEBI.
  • Further, a robust recusal mechanism was proposed to ensure that officials abstain from decision-making in cases involving any real or perceived conflict.
  • A summary of recusals by the chairperson, WTMs, part-time members, and senior staff should be published annually in SEBI’s annual report.

Strengthening Post-Retirement Ethics and Whistle-Blower Mechanism

• Post-retirement restrictions: Former SEBI officials, including contractual employees, advisors, and consultants, will be barred from appearing before or against SEBI in any adjudication or settlement matter for two years after leaving the organisation.
• Whistle-blower protection: A secure, confidential, and anonymous whistle-blower mechanism should be instituted to report potential or perceived conflicts of interest.
• This mechanism will extend to external stakeholders such as market intermediaries, infrastructure institutions, and participants.

Ensuring International Alignment

• The proposed reforms are designed to align SEBI’s internal governance with global standards of regulatory integrity.
• Similar frameworks exist in institutions like the U.S. SEC, where commissioners are required to make public financial disclosures, and the European Securities and Markets Authority (ESMA), which enforces recusal and conflict-prevention protocols.
• By adopting such practices, SEBI seeks to strengthen its institutional credibility at a time when public confidence in regulatory independence is essential for market stability and foreign investor confidence.

Implementation and Next Steps

• The HLC’s recommendations, once finalised and approved by the SEBI Board and the Ministry of Finance, will form part of SEBI’s revised Code of Conduct and Ethics Policy, applicable prospectively.
• To ensure smooth adoption, SEBI may implement a phased rollout, starting with senior officials and expanding to all employees.
• Public disclosure of assets by top officials could be integrated into SEBI’s annual report or website.