In a candid interview with The Indian Express, Tuhin Kanta Pandey, the newly-appointed chairman of the Securities and Exchange Board of India (SEBI), acknowledged a significant lapse in the regulator's transparency standards. He noted that there was ‘virtually no public disclosure’ in the context of his predecessor’s personal interests and existing disclosures failed to meet ‘minimal expectations’.
This admission is in stark contrast to the meticulous defence put up by former chairperson Madhabi Puri Buch, amid allegations of conflicts of interest related to the Adani group. She has maintained that she had adhered to all necessary disclosures and recusal protocols. Mr Pandey’s remarks are extremely significant in the context of the finance ministry’s deafening silence over the conflict affair which signalled strong support for Ms Buch right until her exit in March this year.
There is a different wind blowing today. Apart from his public statements, Mr Pandey initiated a comprehensive review of SEBI's conflict code by establishing a high-level committee (HLC) at his very first board meeting in April. Speaking at an event, he emphasised the necessity for regulatory bodies to uphold the highest standards of governance and transparency, stating, "Maintaining trust and transparency is paramount to instil confidence in investors... Therefore, we need to be more transparent on conflict of interest of the Board."
SEBI’s 2008 avoidance of conflict code, applicable only to the chairperson and whole-time members (WTMs), was weak, legally dodgy and, strangely enough, a voluntary code. Yet, it remained unchanged for 16 years, under four different chairpersons and copious regulations being framed for every market institution and intermediary. Had any previous chairperson updated the 2008 code, SEBI could have avoided the embarrassment that it faced over the handling of charges against Ms Buch. SEBI has yet to clarify whether its top brass has adhered to the weak and voluntary 2008 code, or the more stringent government service rules that government top regulatory appointments (Read: SEBI’s Conflict of Interest Code: A Riddle Wrapped in a Mystery inside an Enigma).
The HLC has been entrusted with a broad and urgent mandate. Foremost among its tasks is to determine whether SEBI requires a dedicated and binding code of conduct to prevent conflicts of interest—despite the fact that other regulators have not felt the need for one. In my view, there is no room for ambiguity: a clear, legally enforceable code of ethics is imperative—not just for SEBI, India’s first independent regulator—but for all financial and sectoral regulators, including those overseeing utilities such as gas, telecom and electricity, as well as real estate and the competition commission of India (CCI).
The risks posed by access to unpublished price-sensitive information (UPSI) and the potential for insider trading are obvious in these domains. If the government intends to maintain a revolving-door policy that permits lateral entry from the private sector into regulatory roles, it cannot afford to wait for the next scandal. A robust and mandatory ethical framework must precede controversy, not follow it.
The HLC has an opportunity to craft a model code of ethics that could either be adopted by SEBI or function as a stand-alone framework under a dedicated legislation—akin to the Ethics in Government Act of the United States. The US Act sets out clear boundaries regarding permissible investments and income sources for those in fiduciary roles and mandates the divestment or transfer of certain assets into blind trusts to eliminate conflicts of interest.
India needs similar clarity. The dubious clause in SEBI’s 2008 code that permits senior officials to ‘deal in shares’ must go. Substantial equity holdings should be either frozen or liquidated and placed in blind trusts. Employees stock option plans (ESOPs) must be encashed prior to assuming a regulatory post and violations of the code should automatically trigger an investigation with clearly defined penalties—including dismissal, where warranted.
Crucially, the code must cover indirect financial interests—those held through trusts, discretionary family offices, or affiliated entities to prevent loopholes in disclosure and enforcement. This is entirely consistent with Rule 3(1) of the SEBI (Service) Rules which already stipulates that the chairperson must be someone who does not—and will not—hold any interest “likely to affect prejudicially his functions.” It is time to give these principles teeth.
The HLC must establish rigorous protocols for the periodic disclosure of assets, mandatory recusal in the event of conflicts and a transparent process for investigating complaints—including confidential treatment of whistle-blower disclosures. The consequences for violations must be proportionate to the authority and fiduciary responsibility vested in regulatory positions and these must be clearly delineated in the code.
An independent and binding code of ethics, enacted through a dedicated legislation, would create the institutional framework necessary to address future controversies with credibility and consistency—and resist political interference. It would also prevent a repeat of the embarrassing precedent set by SEBI, where the regulator exonerated its own chairperson via an anonymous press release, with no transparency about the process. There are several additional concerns that must be tackled by adopting global best practices.
Fixed Term: Holding a powerful regulatory office entails a service obligation and fiduciary duty that necessarily involves some financial sacrifice. This sacrifice can be limited through fixed, non-renewable terms for regulators. Fixed tenures ensure independence and bold decision-making by removing the lure of post-retirement opportunities or term extensions. In India, it is an open secret that industry lobbies often influence appointments and reappointments through quid pro quo arrangements. A fixed tenure removes temptation and insulates regulators from undue influence.
Cooling Off Period: The conflict code must mandate a statutory cooling-off period of one to two years before senior regulators can accept positions with regulated entities or take up lucrative independent directorships. Particular scrutiny must apply when a regulator seeks to join an entity that has previously entered into a settlement with the regulator during their tenure. Such moves should require prior clearance to ensure transparency.
Definition of Related Persons: The new code must broaden the definition of ‘family’ to match the disclosure standards required of independent directors and under tax laws. SEBI’s failure to update its own disclosure norms for 16 years—while imposing stricter rules on market participants—is a glaring omission. Each SEBI chairperson during this period bears responsibility for perpetuating this double standard.
Recusal Policy: Clear recusal protocols are essential. When a conflict arises, the official must declare it, abstain from all related discussions and decisions and the minutes of the board of directors must record the nature of the conflict and reason for recusal. A summary of such cases should be included in SEBI’s annual report and published on its website.
This is critical in a chairperson-led organisation where influence over staff via promotions and postings is well known. Weak safeguards breed internal dissent, politicisation and a toxic culture—ultimately undermining SEBI’s credibility and effectiveness.
If the HLC does its job well, its recommendations could mark a turning point in India’s regulatory governance. It has the opportunity to set a precedent not just for SEBI, but for every independent regulator in the country. A robust, legally binding code that addresses conflicts of interest, cooling-off periods, recusal protocols and asset disclosures would anchor regulatory credibility in a time of eroding public trust. The alternative is more institutional drift maybe at other regulatory bodies and embarrassing clean chits issued in anonymity. India’s market architecture deserves better. The HLC must deliver.
All other departments also need to have disclosures.
Can also cover on EPFO. Most of the employees have issues in getting the service records updated and then you are referred to an agent. Despite that it takes time and paper weight to get it done.
Although with NPS this may not be of relevance in future.
Thanks
It is, indeed, heartening to note the change in mindset of at least one official which will lead to transparency in the working of such an important body.
One wonders what might have led to such a turn around? Is it the falling levels of FDI? Is it the decrease in political clout of the current govt at the center? Is it the newly active justices?
Whatever it is, it is a welcome change brought about thanks to the excellent reporting in this newsletter.
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This means access to other articles (outside the subscription period) are not included.
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Can also cover on EPFO. Most of the employees have issues in getting the service records updated and then you are referred to an agent. Despite that it takes time and paper weight to get it done.
Although with NPS this may not be of relevance in future.
Thanks
One wonders what might have led to such a turn around? Is it the falling levels of FDI? Is it the decrease in political clout of the current govt at the center? Is it the newly active justices?
Whatever it is, it is a welcome change brought about thanks to the excellent reporting in this newsletter.