Overhaul of SEBI's Ethical Framework: New Rules Mandate Public Disclosure and Investment Limits
SDG 16: Peace, Justice, and Strong Institutions | SDG 17: Partnerships for the Goals
Institutions: Securities and Exchange Board of India (SEBI) | Central Vigilance Commission (CVC) | Ministry of Finance
The Report of the High-Level Committee (HLC) on Conflict of Interest, Disclosures and Related Matters in respect of Members and Officials of SEBI, concludes that the Securities and Exchange Board of India’s (SEBI) framework for managing conflicts of interest, primarily resting on the voluntary SEBI Code on Conflict of Interests for Members of Board, 2008 and the SEBI (Employees’ Service) Regulations, 2001 (SEBI ESR) , is inadequate and needs reinforcement to promote transparency and public trust. The review found that the current system had a significant disparity in obligations and that the SEBI Code lacked legal backing and enforceability.
The proposed new framework, benchmarked against international regulators like the US SEC and UK FCA, introduces several legally enforceable pillars:
Public Disclosure: Mandatory public disclosure of assets and liabilities for the Chairperson, Whole-time Members (WTMs), and senior SEBI officials (Chief General Managers—CGMs—and above).
Uniform Investment Rules: Uniform restrictions on investments and trading, applying equally to the Chairperson, WTMs, and employees. New investments in equity and equity-related instruments are restricted, though pooled, regulated vehicles (like mutual funds) are permitted up to 25% of the financial portfolio.
Insiders Status: The Chairperson and WTMs are now deemed “insiders” under the SEBI (Prohibition of Insider Trading) Regulations, 2015.
New Ethics Infrastructure: Creation of an Office of Ethics and Compliance (OEC) and an Oversight Committee on Ethics and Compliance (OCEC) to manage disclosures and conflicts, supported by secure, technology-based systems.
The comprehensive overhaul of SEBI’s internal ethical framework signals a strong commitment to institutional integrity and anti-corruption measures, aligning India’s capital market regulator with global best practices (IOSCO Principles). This move directly addresses risks of regulatory capture and reputational damage by enforcing transparency through public disclosure, which is essential for maintaining investor confidence and ensuring an effective, fair, and trusted securities market.
What is the significance of the distinction between the SEBI Code and the SEBI ESR?→ The SEBI Code on Conflict of Interests for Members of Board, 2008 (SEBI Code) was found to be a voluntary statement lacking penalties and legal enforceability. In contrast, the SEBI (Employees’ Service) Regulations, 2001 (SEBI ESR) is a subordinate legislation and is legally enforceable. The HLC’s key recommendation is to implement the new framework for Board Members through a separate set of Regulations under Section 30 of the SEBI Act, 1992, making the new standards legally binding.
Follow the full report here: Report of the High-level Committee on Conflict of Interest, Disclosures and Related Matters in Respect of Members and Officials of the Securities and Exchange Board of India (SEBI)