“The Sebi Code is voluntary and has no sanctions for non-compliance,” the report said, adding that this weakens its effectiveness compared to international standards.The panel’s review was triggered by increasing scrutiny of governance standards at the regulator following allegations of conflict of interest against former Sebi chairman Madhabi Puri Buch.
A report by short seller Hindenburg Research alleged that Buch and her husband had secret offshore investments, a charge both denied. The controversy prompted Sebi to initiate an internal review of its own conflict of interest safeguards to ensure transparency and credibility.
According to the committee, there is a clear difference in obligations between the board members and employees of Sebi. While employees face stricter restrictions – including a ban on stock investments, mandatory annual asset disclosures and treatment as “insiders” under insider trading rules – board members face stricter disclosure obligations and fewer restrictions. The report points out several inconsistencies and gaps in Sebi’s ethics system. It says the definitions of “family” and “conflict of interest” differ in internal rules, there is no independent ethics office and the regulator has no structured process for reviewing disclosures. Disclosures by members are confidential and are not subject to substantive review. There is no public disclosure of the interests or refusals of members or employees,” the committee noted.
It also exposed weak enforcement mechanisms, saying Sebi does not have an independent ethics oversight structure or whistleblowing system to address potential conflicts. Post-employment restrictions, the panel added, are inconsistent between members and employees and poorly enforced.
In contrast, the report states that global regulators follow much stricter standards. International best practices include comprehensive definitions of conflicts, public disclosure of financial and professional interests, centralized ethics infrastructure, digital disclosure repositories and robust denial procedures supported by audit trails.
Many regulators also have dedicated whistleblowing channels and mandatory ethics training, which ensures that conflicts – both actual and perceived – are addressed quickly and transparently.
To bridge these gaps, the committee has proposed a new integrated and enforceable framework that will apply uniformly to all Sebi officers, from the chairman to senior management.
It recommends a comprehensive definition of conflict that includes financial, relational, fiduciary and information-based interests. The definition of ‘family’ should be standardized across the organization and brought into line with the Companies Act and Sebi’s Listing Obligations and Disclosure Requirements (LODR).
The panel has proposed a multi-level disclosure system – covering initial, annual, event-based and exit disclosures – with public disclosure of the assets and liabilities of the chairman, full-time members and senior officers on Sebi’s website.
It has also proposed uniform investment restrictions, with top officials being considered “insiders” under the Insider Trading Regulations, although they are allowed to invest in regulated pooled vehicles such as investment funds.
The committee further called for a strict ban on gifts, a robust denial mechanism with digital conflict signaling and three-year lookback provisions, and public reporting of denials in Sebi’s annual report. It also recommended a cooling-off period of two years after retirement, during which former officials cannot appear before or against Sebi, and mandatory disclosure of labor negotiations before departure.
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