SEBI to form expert committee to review conflict of interest, disclosure of its board

The board has decided to constitute a HLC to undertake a comprehensive review of the provisions relating to conflict of interest, disclosures pertaining to property, investments, liabilities etc., and related matters in respect of Members (including Chairman) and Officials of the Board, SEBI said in a release.

“There are issues relating to conflict of interest, disclosures, property, investments, liabilities, and how it is to be reported. So the high-level committee needs to be constituted, away from SEBI…an independent committee,” SEBI Chairman Tuhin Kanta Pandey told reporters after his first board meeting.

“You could say that there was a certain trust that needed to be built up. Secondly, people in our organisation and outside need to be clear that things are fine and there is no tendency to hide. The point is if you don’t have a framework, how do you know which one to be disclosed? How will it be disclosed? If you have a complaint to make, how do you make a complaint? Where does it go? How does it get mitigated? It is important that we look at these issues and what are the best practices around it,” Pandey said when asked about the rationale for setting up a HLC at the current juncture.

The announcement comes months after the regulator’s former chairman, Madhabi Puri Buch, came under attack from US-based short seller Hindenburg Research, which has now shut down the shop, for having 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 said that HLC will comprise of eminent persons and experts with relevant background and experience in constitutional / statutory/ regulatory bodies, government / public sector, private sector and academia, and the names of the HLC members will be announced in due course.

The committee is expected to submit its recommendations within three months from the date of constitution, which shall be placed before the board for consideration, SEBI said.

On the FPI disclosure threshold, SEBI board approved a proposal to double the applicable limit to Rs 50,000 crore.

“Cash equity market trading volumes trading volumes have more than doubled between FY 2022-23 (when these limits were set) and the current FY 2024-25. In light of this, the Board approved a proposal to increase the applicable threshold from the present Rs 25,000 crore to Rs 50,000 crore,” SEBI said.

As per a circular released in August 2023, FPIs (individually or as an investor group), holding more than Rs 25,000 crore of equity asset under management (AUM) in Indian markets are required to disclose details of all entities (up to the level of natural person) holding any ownership, economic interest, or control, on a full look through basis, without any thresholds.

This specific requirement was to guard against any potential circumvention of Press Note 3 stipulations by large-sized FPI with the potential to disrupt the orderly functioning of markets by their actions.

During the Covid-19 pandemic, the government amended the foreign direct investment (FDI) policy through a Press Note 3 (2020) on April 17, 2020. The amendments were made to check opportunistic takeovers/acquisitions of stressed Indian companies at a cheaper valuation.

The SEBI board also reviewed the provisions related to the appointment of public interest directors (PIDs), cooling-off period for key management personnel (KMPs) and directors, and the appointment process for specific KMPs in Market Infrastructure Institutions (MIIs).

As per the review, if the governing board of an MII decides not to re-appoint an existing PID after his/her first term, it must record the rationale for this decision and communicate it to SEBI.

The governing board of an MII may prescribe a minimum cooling-off period for its KMPs and directors, including managing director and PIDs, before joining a competing MII. The regulator will no longer prescribe a cooling-off period for PIDs transitioning from one MII to another, it said.

In the matter of advance fee to be charged by Investment Advisers (IAs) and Research Analysts (RAs), SEBI said that they can charge fees in advance up to a period of one year, if their client agrees.

The SEBI board announced to defer the implementation of the amendments to the regulations governing merchant bankers, debenture trustees and custodians as approved at its last board meeting.

In its December 2024 board meeting, SEBI had approved merchant bankers, debenture trustees and custodians to carry out other regulated activities as a separate legal entity after obtaining registration/ confirmation from the respective regulatory authority within a period of two years from the date of notification of amended regulations.

In order to improve ease of doing business, SEBI said that investments of Category II AIFs in listed debt securities rated ‘A’ or below will be treated as akin to investments in unlisted securities for the purpose of their compliance with minimum investment conditions in unlisted securities.

At present, Category II AIFs are required to hold a majority of their investments in unlisted securities.