Explained: Key changes in SEBI’s conflict-of-interest rules for its top officials

Markets regulator Securities and Exchange Board of India (SEBI) on Monday approved a wide-ranging overhaul of its conflict of interest framework for board members and employees, almost two years after the issue came to the fore with allegations against the then chief Madhabi Puri Buch.

What has changed?

As per the SEBI board decision on Monday, the Chairman and WTMs will now be brought under the definition of “insider”, aligning them with insider trading norms.

"The immovable property details of the Chairman, WTM, Executive Directors and Chief General Managers may be publicly disclosed in line with the requirements already applicable to Government of India All India Service (AIS) and Central Civil Services(CCS) officers,” the regulator said.

“However, details of assets and liabilities in the format to be prescribed would have to be internally disclosed to Sebi," it added.

Under the new framework, restrictions on investments and trading in equity and equity-related instruments, currently applicable to employees, will now uniformly extend to the SEBI Chairman and Whole-Time Members (WTMs).

However, investments in mutual funds and other permitted pooled vehicles will continue to be allowed, with new investments permitted in professionally managed schemes run by regulated intermediaries.

The Board also mandated that the Chairman and WTMs choose from four options for their existing equity holdings at the time of assuming office: liquidation, freezing, sale through a trading plan, or sale without a trading plan with prior approval.

Investments in commercial ventures, including unlisted companies, must be fully liquidated or frozen during their tenure, and vested stock options must be exercised prior to joining, according to SEBI.

The Board also approved aligning the definition of “family” across members and employees to include spouse, dependent children, legal wards and financially dependent relatives.

The board also decided to create an "ethics infrastructure", which will involve setting up the 'office of ethics and compliance' for management of conflict of interest framework for employees.

Officials will be required to disclose any negotiations or agreements for future employment, while a digital system and whistleblower mechanism will be established to report actual or perceived conflicts of interest.

The Board also decided to extend investment restrictions in shares to spouses and dependent family members of officials, with exemptions for unlisted securities, employee stock ownership plans (ESOPs) and discretionary portfolio management services.

“These restrictions would apply prospectively and existing investments shall be grandfathered,” SEBI said.

New investments by officials in products managed by a single SEBI-registered intermediary will be capped at 25% of their financial portfolio. Officials breaching this limit will have to recuse themselves from matters involving the concerned intermediary.

The Board also accepted recommendations on recusal norms in cases involving material financial interests, and approved creation of a digital system to record disclosures and process recusal requests.

The revised framework will be incorporated into the 2008 Code on Conflict of Interest for Board members for voluntary adoption.

Also, after deliberations, the board decided to refer certain recommendations, including notifying separate regulations for Board members and setting up an independent oversight mechanism for conflict of interest, to the central government, which is the appointing authority.

SEBI said implementation of the new framework will involve amendments to its employee service regulations, revision of the 2008 Code, and creation of supporting systems and operational guidelines.

Buch, whose term ended in early 2025, had faced allegations of potential conflicts of interest and nondisclosures during her term, becoming the first of the market regulator's chiefs to face such allegations while in office. Pandey, her successor, appointed the high-level panel to suggest ways to avoid similar issues in future.