India’s securities regulator, the Securities and Exchange Board of India (Sebi), on Monday approved sweeping changes to its internal rules governing conflicts of interest, disclosure requirements, and ethical conduct for its employees, including its chairman and whole-time members. The overhaul, championed by current Sebi Chairman Tuhin Kanta Pandey, aims to bolster transparency and public trust following concerns raised about potential conflicts during the tenure of his predecessor.
The reforms, which Sebi intends to implement voluntarily even before formal government notification, represent a significant effort to preemptively address potential ethical lapses and ensure the integrity of India’s financial markets. The move comes as scrutiny of regulatory bodies worldwide intensifies, and as investors demand greater accountability from those overseeing their investments. The changes will impact a broad range of Sebi officials, from the chairman down to executive directors and chief general managers.
At the heart of the latest framework is a push for greater financial disclosure. Sebi officials, including the chairman and whole-time members, may now be required to publicly disclose details of their immovable property holdings, aligning with standards already in place for central civil services and All India Services officers. This increased transparency is intended to provide a clearer picture of potential conflicts and build public confidence in the regulator’s impartiality. The regulator will too establish a digital system to formally record disclosures of conflicted relationships and track decisions regarding recusal from specific cases, a process that has previously lacked formal structure.
Strengthening Disclosure and Recusal Procedures
The revised rules address investment practices as well. While allowing investments in pooled vehicles managed by regulated intermediaries, Sebi is imposing stricter limitations on direct equity investments by family members of key personnel. Investments will be largely restricted to unlisted securities, employee stock ownership plans, and discretionary portfolio management services. Existing holdings will be “grandfathered” – meaning they are exempt from the new rules – but future investments will be subject to the tighter restrictions. This is a key change designed to prevent potential insider trading or the appearance of impropriety.
Chairman Pandey, who prioritized a review of the code of conduct upon assuming office last year, emphasized the importance of proactive measures. He indicated that the voluntary implementation of these changes demonstrates Sebi’s commitment to upholding the highest ethical standards. The previous review was prompted by allegations and concerns surrounding the conduct of former Sebi Chairperson Ajay Tyagi, as reported by Livemint.
Sebi is classifying the chairman and whole-time members as ‘insiders’ under the new rules, broadening the scope of individuals subject to stricter regulations. The definition of “family members” has also been expanded to include spouses, dependent children, legal wards, and relatives by blood or marriage, ensuring a more comprehensive approach to identifying potential conflicts.
Easing Restrictions for Intermediaries, Boosting Investor Access
Alongside the stricter internal controls, Sebi also announced some adjustments to regulations affecting market intermediaries. The regulator has relaxed the “fit and proper person” criteria, removing the automatic disqualification of intermediaries upon the initiation of an economic offence probe. Disqualification will now only occur upon conviction, a change prompted by numerous legal challenges to the previous provision. This adjustment aims to balance the need for regulatory oversight with the principle of due process.
Sebi also approved measures to facilitate foreign portfolio investment (FPI) and broaden investment opportunities. The regulator approved the netting of funds for FPIs for outright cash market transactions, slated for implementation by December 31, 2026, to reduce costs and streamline operations. Sebi expanded investment avenues for Infrastructure Investment Trusts (Invits) and Real Estate Investment Trusts (REITs), allowing them to invest in a wider range of liquid mutual fund schemes. Privately placed Invits will also be permitted to invest up to 10% of their asset value in greenfield infrastructure projects.
In a move designed to encourage broader participation in the social stock exchange, Sebi significantly lowered the minimum investment requirement for individual investors in social impact funds under alternative investment funds, reducing it from ₹2 lakh to just ₹1,000. This reduction aims to democratize access to impact investing and channel more capital towards socially beneficial enterprises.
Key Changes at a Glance
- Stricter investment restrictions for Sebi chairman and whole-time members
- Mandatory disclosure of assets, liabilities, and future job negotiations
- Allows Alternative Investment Funds (AIFs) to retain liquidation proceeds beyond fund life under defined conditions
- Minimum investment size cut to ₹1,000 from ₹2 lakh for social impact funds
- No automatic disqualification of intermediaries for pending FIRs or complaints
Sebi has also capped exposure to a single intermediary at 25% of a member’s portfolio, requiring the liquidation or freezing of holdings exceeding that limit during their tenure, including in unlisted ventures. Vested stock options must be exercised before joining Sebi. These measures are intended to prevent undue influence and ensure impartial decision-making.
The changes approved by Sebi represent a comprehensive effort to strengthen the regulator’s internal governance and promote greater transparency in India’s financial markets. The voluntary implementation signals a proactive approach to addressing potential conflicts of interest and reinforcing public trust. The recommendations will now be forwarded to the central government for final approval, but Sebi’s commitment to immediate action underscores the urgency of these reforms.
The next step in the process is the review and approval of these recommendations by the central government. Sebi officials have indicated they anticipate a swift response, given the regulator’s commitment to voluntary implementation. Investors and market participants can expect further updates on the formal notification of these changes in the coming weeks. Share your thoughts on these reforms and their potential impact on the Indian financial markets in the comments below.
