Sebi chief to banks: Strengthen compliance to prevent possible insider trading breaches

"Insider trading risks thrive where controls are weak—where processes are unclear, responsibilities are undefined, and oversight is inconsistent," Pandey told managing directors and chief executives of listed banks, noting that weak controls remain the prime reason behind many frauds.

This comes against the backdrop of Sebi issuing an interim order in June against few top brass of IndusInd Bank for violating insider trading norms. The regulator had found that few senior executives, including MD & CEO and deputy CEO allegedly traded in IndusInd Bank shares while in possession of unpublished price-sensitive information related to discrepancies in account balances of the bank’s derivative portfolio.

According to Pandey, a robust internal control framework ensures accountability for every piece of unpublished price-sensitive information (UPSI), timely and accurate disclosures, and a clear understanding among employees of their responsibilities supported through clear written policies, codes of conduct, and periodic training.

Pandey urged banks to place the highest priority on safeguarding UPSI. Even casual or informal sharing in meetings or over e-mail, he warned, should be considered a serious breach.

"A single leak can travel across digital networks in seconds, and there is no way to undo the damage to stock prices, to investor confidence, or to your bank’s reputation," he said.

He also reminded banks that they shoulder dual responsibilities--as listed entities themselves and as custodians of sensitive information belonging to other listed firms.

Another key area of focus, Pandey said, must be the role of the Compliance Officer under the Prohibition of Insider Trading (PIT). Compliance with the regulations is not just a legal obligation but it is a moral responsibility.

He emphasized that this role should never be symbolic. Boards must ensure that Compliance Officers are fully empowered with authority, training, tools, and clear backing from leadership to enforce regulations effectively.

"Above all, never bypass the Compliance Officer's oversight," he cautioned.

Also, Pandey called on banks to leverage technology for stronger compliance. Automated trading window management, centralized pre-clearance and disclosure portals, and digital training and certification platforms, he said, can significantly reduce compliance risks.

He further suggested that technology solutions should be developed to monitor trades during sensitive periods that trigger trading window closures but may not yet be covered by automated systems. Such measures, he noted, would reduce the burden on compliance teams.