A recent review by a high-level committee established by the Securities and Exchange Board of India (Sebi) has revealed significant flaws in the current conflict-of-interest regulations governing the capital markets regulator. The committee concluded that the existing codes are inadequate, voluntary, and lack the legal authority necessary for effective enforcement, particularly when compared to the more stringent Sebi Employees Service Regulations (ESR).
The committee, formed in March 2025, was prompted to assess Sebi’s ethics and disclosure systems amid growing concerns regarding governance practices, particularly following allegations of conflict of interest involving former chairperson Madhabi Puri Buch. These allegations highlighted undisclosed offshore investments, which Buch and her husband have denied, leading Sebi to undertake a thorough review of its conflict-of-interest safeguards.
Significant discrepancies were noted between the obligations of Sebi’s board members and its employees. The latter face harsher restrictions, such as bans on equity investments and mandatory annual disclosures, while board members are subject to looser regulations. The committee's report highlighted various inconsistencies, including ambiguous definitions of terms like 'family' and 'conflict of interest,' a lack of an independent ethics office, and the absence of a structured process for reviewing disclosures.
The review emphasized that current disclosures by board members remain confidential and are not subjected to thorough reviews. Furthermore, the absence of a whistleblower framework compounded the challenges in addressing potential conflicts of interest. Enforceability issues and varied post-employment restrictions further underscore the need for reform.
In contrast, global regulatory bodies operate under more rigorous guidelines, which typically include detailed definitions of conflicts, public disclosure of financial interests, and centralized ethics infrastructure alongside strong whistleblower protection channels.
To rectify identified gaps, the committee has proposed a comprehensive and legally binding framework for all Sebi officials. This new structure would introduce a broader definition of conflicts that encompasses financial and relational interests, and standardizes familial definitions according to existing legislation. Moreover, it recommends a multi-tier disclosure system that requires public asset and liability reporting for senior officials, alongside uniform investment restrictions.
The committee’s recommendations also include the prohibition of gifts and a robust recusal mechanism featuring digital conflict-flagging tools. A significant post-retirement cooling-off period of two years is also suggested to prevent former officials from influencing Sebi decisions.
Overall, the committee argues that these reforms are essential for promoting accountability, transparency, and public trust in the functioning of Sebi, and to align its practices with international standards that better protect the integrity of capital markets.