Opinion SEBI’s moves to address concerns over disclosure norms and conflict of interest: A step in the right direction

Last year, allegations by the US-based firm, Hindenburg Research, had raised troubling questions for the Indian stock market regulator, particularly over its disclosure norms and matters of conflict of interest. Hindenburg had alleged that then SEBI chairperson Madhabi Puri Buch and her husband “had hidden stakes in the exact same obscure offshore Bermuda and Mauritius funds, found in the same complex nested structure, used by Vinod Adani”. SEBI was at the time probing the Adani Group. In her defence, Buch had argued that “all disclosures as required have already been furnished to SEBI”. In August, SEBI issued a statement saying that it has “adequate internal mechanisms for addressing issues relating to conflict of interest which include disclosure framework and provision for recusal”. Notwithstanding the defence mounted, however, questions arose and persisted, especially about why the disclosures had not been made to the wider public.

In an interview to this paper, Tuhin Kanta Pandey, the new SEBI chair, has acknowledged the gap, noting that there was “virtually no public disclosure” for those at the helm of SEBI. This is odd, for those charged with protecting the integrity of the Indian stock markets. After all, members of Parliament declare their assets and liabilities. More recently, Supreme Court judges have publicly declared their assets, publishing them on the court’s website. Considering the wide ambit of the market regulator’s influence, there needs to be a proper framework for public disclosures and also for recusal processes. Any link between the market regulator and the regulated entity must be fully disclosed. Not doing so will only raise more questions.

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The constitution of a high-level committee to review and make recommendations for strengthening frameworks for managing conflicts of interest and disclosures for the regulator’s board members is a step in the right direction. Putting in place a robust mechanism, drawn after wide-ranging consultations with all stakeholders, will help address the concerns that have been raised. As Pandey says, “in terms of conflicts… this framework needs clarity. Otherwise, there will be confusion.” Alongside, the norms for recusal must also be clearly defined and laid out. The stock market regulator needs to be ring-fenced from such allegations in the future. The guiding objective must be to ensure that aspersions cannot be cast on the functioning and decisions of the regulator. Its integrity, independence and autonomy must be bolstered. At a time when millions are entering the stock markets — as per reports, the number of demat accounts now exceeds 170 million, with account holders now located in almost all pin codes in the country — their faith in the market regulator and the efficient functioning of the markets must be fortified.