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Mumbai: India’s market regulator has tightened conflict-of-interest rules, bringing its top leadership under a stricter disclosure and investment regime amid heightened scrutiny of governance standards.

The board of the Securities and Exchange Board of India (Sebi) on Monday approved a sweeping set of regulations based on recommendations of a high-level committee (HLC), aligning rules for senior officials with those applicable to employees and plugging gaps in transparency, recusals and personal investments.

Mint explains the new rules and whether they are enough to ensure accountability in Sebi’s top brass.

Sebi has introduced a tighter disclosure and recusal framework. The chairman, whole-time members (WTMs) and employees must make initial, annual and event-based disclosures of assets, liabilities, trading activity and relationships, and disclose any negotiations for future employment.

The rules mandate recusal in cases of material financial interest or other conflicts, with a digital system to record disclosures and approvals.

Public disclosure rules have been only partially expanded. Immovable property details of top officials, including the chief general manager (CGM) and those above the CGM, will be disclosed in line with civil services rules, while broader asset and liability disclosures will remain internal.

Sebi will also set up an Office of Ethics and Compliance, along with a whistle-blower mechanism, to strengthen oversight.

The board has extended uniform restrictions on investments in equities and equity-related instruments to the chairman and WTMs, bringing them in line with employees. Upon assuming office, they must liquidate, freeze, or sell existing holdings, either through a pre-declared trading plan or with prior approval.

Investments in commercial ventures, including unlisted companies, must be liquidated or frozen during their tenure, and vested stock options must be exercised before joining.

Officials can continue to invest in professionally managed pooled vehicles such as mutual funds. However, no official’s portfolio should have more than 25% of assets with a single Sebi-registered intermediary such as a mutual fund or managed by a broker or distributor.

If this threshold is breached, the official must excuse themselves from all matters involving that intermediary. The rules also explicitly bring the chairman and WTMs within the definition of insiders.

The rules extend to immediate family members, with a unified definition covering spouses, dependent children, including adopted and stepchildren, legal wards and financially dependent relatives. Investment restrictions, particularly on direct equity investments, will also apply to spouses and dependent family members.

Some exceptions apply, including investments in unlisted securities, employee stock options received as part of compensation, and discretionary portfolio management services (PMS) where fund managers act independently. These restrictions will apply prospectively, with existing investments grandfathered.

Rules relating to the chairman and WTMs will require approval from the central government, which appoints them, and oversight of board members’ conflicts, including the proposed ethics and compliance committee, will also lie with it.

The overhaul follows recommendations of a HLC constituted by Sebi in March last year to review its framework governing conflict of interest, disclosures, investments and liabilities.

The review was triggered by allegations in August 2024 by Hindenburg Research, which claimed that then Sebi chairperson Madhabi Puri Buch and her husband held undisclosed stake in offshore entities in Bermuda and Mauritius that were allegedly linked to the Adani Group, even as Sebi was investigating the conglomerate.

While both Buch and the Adani Group denied these allegations, the episode raised concerns around potential conflicts of interest and the adequacy of existing disclosure norms at the regulator. Against this backdrop, the committee was tasked with identifying gaps, ensuring uniform application of rules across senior leadership and employees, and recommending stronger safeguards to improve transparency and reduce reputational risks.

Two aspects of the new rules have sparked debate among experts on whether they go far enough on transparency. The decision to disclose only immovable assets has drawn criticism that Sebi should have mandated disclosure of all assets and liabilities.

"I would want more transparency with respect to securities holdings, but they have taken a call to strike a balance between privacy and transparency" said Sandeep Parekh, founder of Finsec Law Advisors.

"Sebi officials also have a right to privacy. But they also have quasi judicial powers which makes them more accountable. Standards of transparency and accountability for any one exercising quasi-judicial power de facto becomes higher,” said Akshaya Bhansali, managing partner at Mindspright Legal.

Though the regulations have been received positively, rules relating to the chairman and WTMs must still go to the central government for approval, raising questions on whether they will be cleared as proposed.

“The norms are good except that they are voluntary for now as the central government will take the final call as they are the appointing authority,” said Parekh.

He added that it is important for the office of ethics and compliance to be headed by someone senior to the Sebi chairman to ensure that conflict of interest matters are duly analysed.

“The office of ethics and compliance has to be appointed by someone senior and independent enough to ensure that conflict of interests are checked independently,” Parekh added.

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