The Securities and Exchange Board of India (SEBI) board’s revised conflict-of-interest framework is being seen as a pragmatic attempt to tighten internal governance, though legal experts have raised concerns around limited public disclosures, reliance on recusal mechanisms and gaps in enforceability.
The framework brings the chairman and whole-time members (WTMs) under insider trading norms, aligns the definition of “family” and extends investment restrictions to spouses and dependents. “Bringing the chairman and WTM under the insider definition and extending restrictions to spouses and dependents was overdue,” said Hardeep Sachdeva, Senior Partner at AZB & Partners.
Disclosure concerns
However, the board’s decision to keep detailed disclosures of assets and liabilities internal, while limiting public disclosure to immovable property, has emerged as a key concern.
“Limiting public disclosure to immovable property follows civil services practice, but SEBI’s role is materially different… Financial assets and market-linked instruments are far more relevant from a conflict-of-interest standpoint than immovable property,” Pranav Bhaskar, Senior Partner at SKV Law Offices said, adding that internal disclosure does not meaningfully enhance external accountability or public confidence.
Akshaya Bhansali, Managing Partner, Mindspright Legal, said the move “falls short on the yardstick of transparency”, especially for a regulator exercising quasi-judicial powers. “There is no harm in being transparent and prevent a situation of being questioned,” she said, adding that disclosure requirements should ideally extend across all officials performing such functions.
“Given the heightened expectations from a market regulator, there is merit in exploring whether a slightly broader, yet carefully structured, public disclosure framework could further enhance confidence without compromising personal security or confidentiality,” Tushar Kumar, advocate, Supreme Court of India.
Another key theme is the framework’s reliance on recusal mechanisms alongside investment restrictions. “The framework leans heavily on recusal mechanisms rather than outright investment bans, which are workable only if backed by a robust digital ethics infrastructure and vigilant oversight,” Sachdeva said, adding that recusals have not worked the best internationally as well.
There are also potential gaps around indirect holdings, particularly through pooled or offshore investment routes. “The challenge lies in monitoring informal influence, side arrangements, or expectations that are difficult to document… where ongoing supervision and periodic audits will matter more than formal rule design,” Bhaskar said.
While such investments are typically treated as arm’s length, the evolving sophistication of financial products does warrant continued vigilance, Kumar said.
The decision to adopt parts of the framework voluntarily rather than codify them into binding regulations has also drawn criticism. Bhansali said this was a “missed opportunity” to address concerns around enforceability, adding that the earlier code’s lack of legal backing had been flagged by the high-level committee itself.
Overall, while the framework is seen as progressive in design and implementable, experts said its credibility will hinge on how SEBI addresses transparency concerns, strengthens oversight of recusals and monitors indirect exposures over time.