Sebi Panel For Sweeping Reforms In Disclosure, Conflict Of Interest Rules For Chairman, Senior Officers

A Sebi panel has proposed comprehensive reforms to bring in transparency by way of greater disclosure and a "zero-tolerance" culture to address conflict of interest with regard to top officials of the capital market regulator.

The high-level panel in its report to Sebi Chairman Tuhin Kanta Pandey has also recommended setting up a secure and anonymous whistleblower system for reporting conflict of interest, ban on expensive gifts, a two-year restriction on post-retirement assignments, and creating a post of Chief Ethics and Compliance Officer (CECO).

The Committee on Conflict of Interest, Disclosures and Related Matters said Sebi Chairman, whole time members, and chief general manager rank officers should make public disclosure of their assets and liabilities.

It further said applicants for the post 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.

The panel has also given an elaborate classification of conflict of interest, which could be in the nature of financial, relational, professional, duty-related or perceived.

"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 committee said in its 98-page report.

It has also suggested that all Sebi 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.

The disclosure is to be made to the proposed Sebi's Office of Ethics and Compliance (OEC) and the Oversight Committee on Ethics and Compliance (OCEC).

Also, it recommended "induction and refresher training that stresses ethical conduct and fostering a zero-tolerance culture for conflict of interest".

It said there should be uniform application of restrictions on investments and trading to Chairman and whole-time members (WTMs), as applicable to employees.

The investment restrictions should also apply to the spouse irrespective of his/her financial status or whether the investment is made out of the money of the Chairman/WTMs or employee or the spouse's own money, and relatives/other persons, who are financially dependent on them substantially, the report said.

It said Sebi members and employees may make new investments in any pooled vehicle, provided the scheme is professionally managed, and the market intermediary concerned is regulated by any of the financial sector regulators (such as RBI/Sebi/IRDAI/PFRDA/IFSCA).

It said the restrictions would not apply to part-time members given their limited role and sphere of influence compared to WTMs.

With regard to post-retirement cooling off period, the panel suggested that there should be a two-year restriction on taking up assignments in Sebi matters, while the existing one-year ban on seeking fresh employment should continue and should also cover advisory, consulting or advocacy relationships.

"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," said the report, which was submitted to Pandey on November 10.

Currently, Sebi board under Chairman Pandey has two WTMs and two part-time members.

The committee concluded that Sebi's current conflict of interest and disclosure framework is inadequate and needs strengthening and reinforcement to promote transparency and public trust.

In March, the Sebi board had decided to constitute the committee to undertake a comprehensive review of the existing provisions related to conflict of interest and disclosures of property, investments, liabilities, and other related matters by Sebi members and officials.

The move came in the wake of allegations against former Sebi Chairperson Madhabi Puri Buch, who was accused of holding back on investigations against the Adani group because of a conflict of interest.

The committee's mandate included reviewing current policies and frameworks governing conflict of interest and identifying any gaps or ambiguities, and suggesting a mechanism for members of the public to raise concerns pertaining to conflict of interest and disclosures, including a process to examine complaints.

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

Pandey's predecessor Buch, who demitted office at the end of February, had come under attack last year from now-shuttered Hindenburg Research which alleged that she and her husband held "hidden" holdings in Bermuda and Mauritius entities also drawn upon by the older brother of Adani group founder Gautam Adani, which possibly held the agency back from investigating fraud charges against the powerful conglomerate.

Both Buch and the Adani group had denied all allegations.