The Securities and Exchange Board of India (Sebi) has overhauled its governance framework for board members, introducing a detailed code on conflict of interest that significantly tightens rules on disclosures, recusals, and non-permitted investments.
The new code shows a shift from broad ethical guidelines to a more prescriptive, compliance-driven regime in comparison to the 5-page code put in place in 2008.
The revised code explicitly bars whole-time members (WTMs) and their families from making fresh investments in non-permitted instruments during their tenure, while also mandating detailed disclosures of such holdings.
Board members will not be permitted to have investments in equity, any instrument convertible into equity, or trading in derivatives of equity or commodities.
The new 17-page code of conduct specifies options before the board members to deal with non-permitted investments at the time of joining. WTMs will have option to either liquidate these investments or freeze them till the completion of their tenure.
They may even sell these investments with prior approval or disclose a trading plan to sell them to the Office of Ethics and Compliance in Sebi.
The regulator had earlier tightened its code of conduct for employees. However, as WTMs and other board members may be appointed from outside and as representatives from other bodies, a separate code of conduct has been prescribed.
Additionally, WTMs have been deemed to be an insider under the regulator’s Prohibition of Insider Trading Regulations and will be bound by its provisions.
The market regulator’s code of conduct had come under lens after allegations of conflict of interest against the former chairperson Madhabi Puri Buch.
The new code also strengthens disclosure requirements, requiring members to periodically report financial assets, liabilities, immovable property, and professional interests, along with any material changes within defined timelines.
In a move aimed at enhancing transparency, Sebi has formalised a comprehensive recusal mechanism. It clearly defines conflicted relationships — spanning financial, professional, and personal links — and mandates complete withdrawal from related proceedings.
A digital system will record disclosures and recusals, with summaries to be published in the regulator’s annual report.
Another notable addition is the provision for public participation. Individuals will be able to flag potential conflicts to the ethics committee, which will examine and escalate cases where necessary.
Further, the updated framework introduces explicit post-retirement restrictions, including a two-year cooling-off period for representing matters before Sebi.
The new code also introduces caps on investments in pooled vehicles managed by Sebi-regulated entities, limiting exposure to 25 per cent of total financial investments.
