Sebi panel on conflict of interest suggests public disclosure of assets for chairman, whole-time members

A disclosure should be made internally by all Sebi employees, the Chairman, and all Board members in respect of the name and relationship of relatives as defined in the Companies Act, 2013 as well as the professional and other relational interests, it suggested.

“The Committee recommends that applicants for the position of chairman and WTMs and for lateral entry positions must disclose actual, potential, and perceived conflict-of-interest risks of financial and non-financial nature to the appointing authority,” the report said.

The committee is headed by Pratyush Sinha, a retired Indian Administrative Service (IAS) officer and former Chief Vigilance Commissioner. Other members include Injeti Srinivas, former secretary, Ministry of Corporate Affairs & former chairman, IFSCA; Uday Kotak, Founder & Director, Kotak Mahindra Bank; G Mahalingam, former Executive Director, RBI and former Whole Time Member, Sebi; Sarit Jafa, former Deputy Comptroller and Auditor General; and R Narayanaswamy, former professor, IIM, Bangalore.

The regulator had formed the expert committee after former SEBI chief Madhabi Puri Buch faced allegations from now-defunct US-based short seller Hindenburg Research, of a conflict of interest. Hindenburg had alleged that Buch and her husband, Dhaval Buch, “had stake in obscure offshore entities used in the Adani money siphoning scandal”. The Buchs had denied the allegation.

The Sebi’s high-level committee proposed uniform application of restrictions on investments and trading to chairperson, whole-time members and employees. It suggested allowing new investments by chairman and WTMs/employees in any pooled vehicle provided the scheme is professionally managed, and the market intermediary concerned is regulated by any of the financial sector regulators in the country.

However, it proposed that these recommendations and investment restrictions will apply to members and employees prospectively.

“The Committee recommends that the chairman and the WTMs be brought within the definition of ‘insider’ for the purpose of the Sebi (Prohibition of Insider Trading) Regulations, 2015,” it said.

It also recommended that the chairman and the WTMs will be required to choose one of the four options for investments held by them at the time of joining — liquidate the investments; freeze the investments; sell the investments according to a trading plan; and sell the investments without a trading plan with prior approval.

The committee examined the definition of family for board members for the purpose of determining conflict of interest. The current definition of family in clause 1(i) of the Sebi Code 2008 comprises a spouse and dependent children under18 years of age. In contrast, Regulation 3(1)(h) of the Sebi (Employees’ Service) Regulations, 2001 (the Sebi ESR) has a broader definition of ‘family’. The ESR definition includes spouse, children, and any other person who is related by blood or marriage to the employee or their spouse and is wholly dependent on the employee.

The committee said that there is a need to maintain parity between board members and employees and bring in more transparency by aligning with international best practices.

“Accordingly, the committee recommended that the definition of family include spouse, dependent children, any person for whom the member/ employee serves as a legal guardian and any other person related to, by blood or marriage to the employee or to his spouse and substantially dependent on such employee,” it said, adding that this will apply to all board members and employees, including contractual appointees.

The committee suggested a prohibition on acceptance of gifts, directly or indirectly, by the chairman and the WTMs from any person with whom they have or are likely to have official dealings.

It recommended that SEBI should place a robust recusal framework. “The committee recommends that a summary of recusals by the chairman, WTMs/PTMs (part-time members) and SEBI employees of the level of CGM and above be published in the Annual Report of Sebi,” it said.

As part of post-retirement restrictions, the committee said that a former member or employee may not appear before or against SEBI in any recognition/adjudication/settlement/ approval matter for a period of two years from the date of retirement or from the date of being relieved from Sebi. This will be applicable to contractual employees, consultants, and advisors.

The committee recommended the establishment of a secure, confidential and anonymous whistle blower system for reporting actual, potential, or perceived conflicts of interest by board members, employees, and external stakeholders, including market infrastructure institutions, market intermediaries, market participants, and the public.