SEBI's Ethics Overhaul: How New Rules Will Transform Market Regulation

The High-Level Committee (HLC), chaired by former Chief Vigilance Commissioner Pratyush Sinha, has proposed a shift from a voluntary code of conduct to a legally enforceable framework, bringing SEBI's governance practices closer to international regulatory standards.

"The recommendations for SEBI Board Members may be implemented by notifying a separate set of Regulations for SEBI Board Members for Disclosures and Management of Conflict of Interest. This would make it legally enforceable, unlike the current Code, which is more akin to voluntary adoption," the report released on Wednesday read.

The report, amongst others, recommended clear definitions, enhanced disclosures, and stronger institutional oversight through an independent ethics office.

"There is no independent ethics office for Board Members; disclosures are confidential and not reviewed substantively," the report said, asserting inadequate enforcement and ethics infrastructure.

The panel has touch upon inconsistent definitions of key terms such as "family," "relative," and "conflict of interest" across SEBI's structures.

The report also recommends a digital registry to record and track all conflict-of-interest declarations within SEBI.

The HLC has proposed creation of an Office of Ethics and Compliance (OEC) headed by a Chief Ethics and Compliance Officer (CECO) at the Executive Director level, supported by an Oversight Committee on Ethics and Compliance (OCEC). These bodies would monitor recusals, handle ethics audits, and review compliance cases.

The Committee concluded that SEBI's current conflict of interest and disclosure framework is inadequate and needs strengthening and reinforcement to promote transparency and public trust.

The proposed framework, according to the report, addresses these gaps through a legally enforceable, comprehensive, and transparent system.

"Key features include uniform definitions, robust disclosure and investment restrictions, stricter gift and post-retirement norms, structured recusal processes, public transparency, and institutionalized ethics oversight. Adoption of these reforms will align SEBI with international best practices, strengthen its reputation, and reinforce its independence and integrity as India's capital market regulator," the report read.

In March 2025, SEBI established a High-Level Committee (HLC) to assess the adequacy of its framework regarding conflicts of interest and disclosure of interests, and to propose reforms aimed at enhancing transparency, accountability, and ethical standards.

The HLC comprised eminent former regulators, public officials, and industry leaders, chaired by Pratyush Sinha (former Chief Vigilance Commissioner). Its mandate covered reviewing SEBI's current policies, benchmarking against domestic and international practices, engaging stakeholders, and recommending a comprehensive framework.

The Committee compared SEBI's framework with those of international regulators such as US SEC, UK FCA, Germany's BaFin, Australia's ASIC, and Singapore's MAS; Indian institutions: RBI, IRDAI, PFRDA, IFSCA, and Government of India service conduct rules; listed companies, MIIs, and intermediaries.

Inputs were gathered from former SEBI leaders, current staff, legal experts, journalists, market intermediaries, and regulated entities, the report said.

- ANI