In a landmark step towards strengthening ethical governance and transparency in India’s capital markets regulator, a high-level committee (HLC) on 'conflict of interest, disclosures and related matters' has recommended a comprehensive revamp of the Securities and Exchange Board of India’s (SEBI) framework governing its members and employees. The HLC has proposed a uniform, legally enforceable conflict-of-interest framework for SEBI’s chairperson, whole-time members (WTMs) and employees, with public disclosure of assets, uniform investment and insider trading restrictions and AI-driven systems to detect and manage ethical conflicts. It also recommended a whistle-blower mechanism for all stakeholders, mandatory ethics training linked to performance reviews, annual publication of recusal summaries and a two-year post-retirement ban on the chairperson and WTMs on joining SEBI-regulated entities.
Chaired by Pratyush Sinha, former chief vigilance commissioner, the Committee’s report proposes sweeping reforms to align SEBI’s internal governance with international best practices and improve public confidence in its independence and integrity. The Committee, constituted in March 2025, was tasked with evaluating SEBI’s current ethics and disclosure framework, benchmarking it against leading global regulators and recommending systemic changes.
From Voluntary Code to Legally Enforceable Framework
At present, SEBI’s framework is largely governed by two instruments, the SEBI code on conflict of interests for members of the board (2008) and the SEBI (Employees’ Service) Regulations, 2001. The Committee found that while the Employee Service Regulations have legal backing, the board’s code of conduct is voluntary, with no statutory enforceability or penalties for violations.
This uneven application, the Committee says, has led to disparities: SEBI employees are subject to stringent restrictions, including a ban on equity investments and mandatory annual disclosures, while board members face weaker disclosure norms and limited oversight.
The report recommends that SEBI issue a new, legally binding set of regulations for board members under Section 30 of the SEBI Act, 1992. These would replace the voluntary code and make conflict-of-interest management mandatory and enforceable. Similarly, amendments to the 2001 Employee Regulations have been advised to harmonise standards across all SEBI officials.
Expanded Definitions and Stronger Disclosures
To ensure consistency and clarity, the Committee proposed a comprehensive redefinition of 'conflict of interest', encompassing not only financial conflicts but also relational, professional, fiduciary, and perceived conflicts.
"The definition of 'family' should include spouse, dependent children (including adopted and stepchildren), legal wards, and any person substantially dependent on the employee or their spouse. The wider definition of 'relative' under the Companies Act, 2013 should also apply for disclosure and recusal purposes," the report says.
Under the proposed framework, all board members and employees must file initial, annual, event-based and exit disclosures of assets, liabilities, and family relationships. SEBI's chairperson, WTMs, and senior officials (chief general manager-CGM and above) will be required to make their asset and liability declarations public.
Applicants for senior positions, including the SEBI chairperson, members and lateral entrants, must disclose actual, potential, or perceived conflicts before appointment, the Committee says.
Investment, Trading, and Recusal Norms Tightened
The Committee has called for uniform investment restrictions for SEBI’s chairperson, WTMs and employees, ensuring that those shaping market regulation do not hold financial interests that could create conflicts.
According to the report, SEBI officials may invest in professionally managed, regulated pooled schemes (such as mutual funds), provided their holdings in any such scheme do not exceed 25% of their total financial portfolio.
Ensuring parity with market participants, the report recommends to treat chairperson and WTMs as 'insiders' under the SEBI (Prohibition of Insider Trading) Regulations, 2015.
"They will have to either liquidate, freeze, or sell existing investments under an approved trading plan upon taking office. Additionally, restrictions will extend to spouses and dependent family members, regardless of whose funds are used for investment," it added.
The Committee also urged the establishment of a digital recusal system capable of automatically flagging potential or perceived conflicts based on disclosed data. "A summary of recusals by SEBI’s chairperson, members, and senior officials should be published annually in SEBI’s report to enhance transparency."
Institutional Ethics Infrastructure and Technology Integration
One of the most significant recommendations of the Sinha Committee is the creation of a dedicated office of ethics and compliance (OEC) headed by a chief ethics and compliance officer (CECO) at the executive director level. This office would oversee conflict-of-interest management, review disclosures, and handle ethical violations.
The OEC will function under an oversight committee on ethics and compliance (OCEC), ensuring accountability and separation of roles, it says.
Further, SEBI is advised to deploy a technology-driven conflict-of-interest management portal, using artificial intelligence and analytics to detect, prevent and predict potential ethical breaches. The system would integrate financial disclosures, recusals, and compliance audits, forming the backbone of SEBI’s ethical governance framework.
Whistle-blower Protection and Public Complaints
The Committee has recommended that SEBI establish a secure and confidential whistle-blower mechanism, allowing internal staff, regulated entities, and even members of the public to report ethical violations or conflicts of interest anonymously.
The proposed system will be modelled on SEBI’s own whistle-blower mechanism for listed entities but enhanced with encryption, identity protection and independent review through the OEC and OCEC.
This, the report says, will ensure both internal accountability and public confidence in SEBI’s integrity as a regulator.
Mandatory Ethics Training and Cultural Reform
To embed ethics in SEBI’s institutional DNA, the Committee proposed mandatory induction, annual refresher, and role-specific training programmes on conflict-of-interest management for all board members and employees.
The National Institute of Securities Markets (NISM), established by SEBI, may design and deliver these modules, complete with online testing and certification, the Committee says.
"Performance appraisals should incorporate employees’ compliance awareness, while ethical excellence should be recognised through commendations and awards," it says, adding, "Over time, this approach is expected to foster a culture of transparency, fairness, and ethical responsibility within SEBI."
Post-retirement Restrictions and Next Steps
The Committee recommended a two-year cooling-off period for SEBI members and senior employees before taking up any position with entities regulated by SEBI. They must also disclose any ongoing employment negotiations while still in office.
To operationalise the reforms, the Committee proposed that:
- SEBI notify new regulations for board members on conflict-of-interest management and disclosures.
- The SEBI board to amend the Employees’ Service Regulations, 2001 to integrate the new standards.
- The OEC and OCEC to be established with the necessary legal and technological infrastructure to ensure continuous oversight.
If implemented, these reforms could transform SEBI into one of the world’s most transparent and ethically governed financial regulators, setting a benchmark for public sector accountability and investor trust.
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