Mint Explainer: Why Sebi set up a committee to review conflict of interest norms

Mint breaks down what the committee is tasked with, the rationale behind its formation, and what it could mean for the future of transparency at Sebi.

What is the committee’s mandate?

According to Sebi, the committee has been set up to undertake a “comprehensive review of the provisions relating to conflict of interest, and disclosures pertaining to property, investments, and liabilities" concerning the members and officials of the Sebi board.

The aim is to ensure high standards of transparency, ethical conduct, and accountability within the regulator. The panel is expected to submit its report within three months of its formation. 

It comprises experts from various fields, including Pratyush Sinha, former chief vigilance commissioner, as chairperson, Injeti Srinivas, former corporate affairs secretary, and Uday Kotak, founder of Kotak Mahindra Bank.

What will the committee review?

The committee’s terms of reference include a thorough review of existing policies and an analysis of current regulations on conflict of interest, disclosures, and related matters, with the aim of identifying gaps or ambiguities.

The committee is expected to propose a strengthened framework to prevent, mitigate, and manage conflicts of interest. This includes:

• Recommendations on recusal policies
• Comprehensive disclosure requirements (including public disclosures)
• Restrictions on investments
• Maintenance of digital records
• A robust monitoring framework

The panel will also recommend a mechanism for the public to raise concerns regarding conflicts of interest and disclosures, including a clear process for examining such complaints.

What prompted this decision?

The move follows allegations involving former Sebi chairperson Madhabi Puri Buch. Short-seller Hindenburg Research had accused her and her husband of holding undisclosed offshore stakes allegedly linked to the Adani Group, a company under Sebi's investigation at the time. 

Both Buch and her husband denied the claims, and the Adani Group also rejected the allegations.

While no wrongdoing was proven, the episode sparked concerns about transparency and the adequacy of existing norms.

Sebi’s new chairperson, Tuhin Kanta Pandey, who took charge in March, made transparency a top priority.

At a media briefing following Sebi's board meeting of March 24, he stressed the need for a system to operationalise what must be disclosed, how and when recusals should happen, and how such actions should be communicated to the public.

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What is expected from the committee?

Experts believe a strong, practical framework is essential. Rashi Dhir, senior partner at DMD Advocates, suggested that a successful conflict of interest policy must strike a balance between incentivizing employees and officers to be forthcoming, and empowering them to make decisions in an unbiased manner.

He noted that the inclusion of experts from vigilance, corporate affairs, banking, regulation, and audit brings a holistic perspective and decades of experience dealing with conflict scenarios.

“Vigilance experts can highlight risk areas and enforcement mechanisms, while corporate and banking professionals offer insights into market dynamics and potential loopholes," he said.

Dhir also added that regulators bring practical knowledge of policy implementation, and auditors ensure accountability and transparency.

“Together, this diversity will promote balanced, pragmatic recommendations that are both stringent and feasible—especially around investment restrictions and disclosure norms for Sebi officials," he said.

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What could be the challenges?

Legal experts argue that any new framework must balance robustness with practicality. A corporate lawyer, speaking anonymously, warned against overly broad or strict rules that may be difficult to implement.

“You cannot have blanket clauses. It may even deter capable individuals from joining the regulator," the lawyer said.

Dhir also echoed that policies governing conflict of interest depend heavily on voluntary disclosures by officers and employees, and require a deep understanding and awareness among them.

“Despite efforts to sensitize stakeholders on conflict of interest policies, implementation is never easy—primarily due to the difficulty stakeholders may have in identifying subtle or indirect conflicts, and the ongoing need to maintain objectivity," he said.

He further noted that such challenges are magnified in a regulatory environment like Sebi, due to its constant and deep engagement with various industries, which may lead to the development of relationships and potential biases.

To maintain objectivity, a policy could sometimes lean toward being conservative—prohibiting or significantly restricting trading, he explained.

“Such policies tend to slow down decision-making and, hamper operational efficiency," he said.