SEBI’s conflicts of interest framework

SEBI’s disclosure framework imposes varying requirements on personnel based on their role and seniority.

Introduction

Recent developments involving a former SEBI Chairperson, sparked by allegations of undisclosed offshore holdings and potential regulatory lapses, culminating in a Lokpal inquiry, have drawn attention to gaps in the Securities and Exchange Board of India’s (SEBI’s) existing conflicts of interest framework.¹ This raised broader questions about the regulator’s ability to safeguard institutional trust. Possibly as a response to this, SEBI constituted a High-Level Committee (HLC) to review its conflicts of interest framework.² The HLC submitted its report, which was made public in November 2025. While the Board has taken cognizance of the recommendations, recent media reports indicate that the proposed framework is likely to be deliberated upon further at the Board’s meeting scheduled for March 2026.

In parallel, the Securities Markets Code Bill, 2025 (SMC) was tabled in Parliament in December 2025.³ This is germane to this discussion because the SMC too, addresses concerns of conflicts of interest at SEBI.

We suggest that an ideal conflicts of interest framework requires three main design principles:

1. it should define boundaries for personnel by detailing what is permitted and prohibited;

2. it should establish a process for making and reviewing disclosures; and

3. it should describe post-employment restrictions.

The doctrinal foundation for these design principles is derived from conflicts of interest guidelines articulated by the Organisation for Economic Co-operation and Development (OECD), the World Bank, and the United Nations (UN).⁴ We identify these principles, and operationalise them through three lines of enquiry, evaluating whether SEBI’s conflicts of interest framework reflects these design principles in practice:

1. Examining whether SEBI follows a role-based differentiation in its disclosure framework.

2. Checking whether SEBI follows a role-based differentiation as regards investment restrictions, and if so, whether these restrictions permit reasonable market access.

3. Evaluating whether SEBI’s post-employment restrictions are permissive or restrictive.

We suggest that making these enquiries and conducting such an analysis can provide a practical way to test whether SEBI’s proposed framework is consistent, balanced, and capable of sustaining public trust.

For each line of enquiry, we identify gaps in SEBI’s conflicts of interest framework, and examine whether the framework proposed by the HLC and the SMC addresses these gaps. As a measure of SEBI’s international standing on these matters, we study practices from securities regulators in developed-economy jurisdictions on these same three areas. We use this analysis and comparison to give recommendations for improving SEBI’s conflicts of interest framework, as proposed to be modified by the HLC and the SMC.

Before we analyse the framework along these three lines of enquiry and provide our recommendations, we provide a brief overview of SEBI’s conflicts of interest framework.

SEBI’s conflicts of interest framework

SEBI’s organisational structure comprises different types of personnel: Board (Chairperson, and whole-time and part-time members), a full-time professional officer cadre (from Grade A to F), contractual consultants, and support staff. The framework governing their service conditions and ethical conduct is defined by two documents: the SEBI (Employees’ Service) Regulations, 2001 (the “Regulations”),⁵ and the SEBI Code on Conflicts of Interest for Board Members, 2008 (the “Code”).⁶ The Regulations and the Code set standards for disclosure and conduct, which form the basis of the regulator’s ethics policy. They also spell out other terms, such as pay and post-employment restrictions.

We notice some gaps and inconsistencies in the Regulations and the Code. We examine the efficacy of SEBI’s existing framework by asking the three questions identified above.

First line of enquiry: Examining whether SEBI follows a role-based differentiation in its disclosure framework

This question is rooted in the principle that governance at regulators must be transparent,⁷ and that institutions must have risk management systems for oversight of disclosure and conflict avoidance.⁸ Mandatory disclosures of interests and personal accountability become critical in ensuring this. With this in mind, we assess how role-based differentiation is structured in SEBI’s disclosure framework.

SEBI framework

SEBI’s disclosure framework imposes varying requirements on personnel based on their role and seniority. While the Regulations are only applicable to full-time employees, the Code is applicable only to the Board. It is important to note here that there are no codified rules for disclosures by part-time employees and consultants. This gap means that consultants and part-time employees (PTMs) such as data analysts, cyber forensic and derivatives experts, etc. who may have access to sensitive information, are left outside the framework entirely. Notably, in FY 2024-2025, SEBI’s Board comprised five PTMs alongside the Chairperson and four whole-time members (WTMs).⁹ Collectively, these five PTMs were invited to 17 Board meetings during their respective tenures, and attended 11 of them.

Further, inconsistencies across the Regulations and the Code compound problems. For instance:

1. Neither the Regulations nor the Code explicitly provide a definition of “conflicts of interest”. This creates ambiguity about what constitutes a conflict and how it should be identified and managed.

2. Further, the definition of “family” is critical because disclosure obligations and investment restrictions are triggered not only by the employee’s own trades, but also by those of their “family” members, making the scope of this term central to the reach of the framework. An inconsistency in defining “family” creates an opportunity for employees to channel trades through relatives and thereby evade disclosure requirements. Notably, the Regulations adopt a broader definition of “family” that includes spouses, dependent children and stepchildren, and any persons wholly dependent on the employee through blood or marriage.¹⁰ On the other hand, the Code restricts the meaning of “family” to include only spouses and children under 18.¹¹ No Explanation is available for why different definitions are adopted across the Regulations and the Code, nor for why Board Members are held to a lower standard of accountability than rank-and-file employees.

Additionally, the Regulations stipulate sanctions for any compliance failures. The sanctions can be classified as either “minor” (withholding promotions, recovery of pecuniary loss), and “major” (reduced pay, compulsory retirement, dismissal). These sanctions are not related to the role or seniority of the violator. The Code, on the other hand, does not outline sanctions for violations.¹²

Reforms proposed by the HLC and SMC

The HLC has integrated the Code and the Regulations into a single framework. However, it has carried forward the two-tier structure by not fully extending the framework to PTMs. PTMs participate in regulatory decision-making, and access price-sensitive information, both of which influence market structure. By not subjecting them to equivalent disclosure and investment restriction requirements, the framework leaves out a material blind spot.

Further, the proposed definition of “conflicts of interest” defines a conflict by way of its effect rather than specifying what constitutes a conflict. While the HLC’s supplemental classification (financial, relational, professional, fiduciary, and perceived) provides guidance, it shifts the burden onto personnel to identify and disclose conflicts. This introduces substantial subjectivity. For instance, one could claim that a financial interest “did not actually influence” their impartiality, leaving enforcement dependent on interpretation.

The HLC has proposed to revise the definition of “family” to include persons related by blood or marriage, who are “substantially dependent” on the employee. However, it does not define “substantially”. At the same time, it proposes adopting the broader definition of “relative” from the Companies Act, 2013 for disclosure and recusal, and not for investment restrictions. This creates a gap. Investment restrictions continue to apply only to the narrower “family” category, meaning that non-dependent relatives, such as siblings or parents may still trade in restricted securities, provided the relationship is disclosed.

Lastly, neither the HLC nor the SMC, proposes a clear and proportionate sanctions structure. Instead, they rely on removal from office and “appropriate action”. While the HLC states that non-disclosure or non-recusal should attract action, it does not define intermediate penalties or what “appropriate action” means. If removal is the only sanction, it is unlikely to be used for moderate lapses.

Position in other jurisdictions

Unlike SEBI, the Securities and Exchange Commission (SEC) in the US and the Financial Conduct Authority (FCA) in the UK, apply a uniform baseline of disclosure requirements to all personnel and then layer on stricter restrictions in line with seniority. For instance, the SEC applies its conflicts of interest and disclosure rules to all personnel, including secondees and contractors, with a stringency that escalates by role. Similarly, the FCA extends its disclosure rules to all categories of staff, including fixed-term employees, contractors, secondees, and agency workers.

Recommendations

We suggest the following reforms towards strengthening SEBI’s disclosure and conflict management framework:

1. The conflicts of interest framework must extend to PTMs, with corresponding financial and personal disclosure requirements if and where their roles involve significant decision-making.

2. Definitional clarity is necessary ─ broad and inconsistent formulations should be revised, and the definitions of “family” and “conflicts of interest” should be clarified:

(a) To define “family”, a risk-based approach could be adopted, restricting the definition to spouse, dependent children under 18, and wholly dependent individuals, while retaining the flexibility to cover a wider circle of relatives for Board Members, in specific sensitive positions.

(b) An ideal “conflicts of interest” definition must:

(i) be embedded in the SMC;

(ii) apply uniformly to all personnel, erasing the two-tier structure extending to PTMs;

(iii) trigger across three states: actual (affecting a current matter), potential (a foreseeable future conflict), and perceived (where an independent third party would reasonably doubt impartiality); and

(iv) structurally categorise specific risks (financial, relational, professional, fiduciary, and duty related).

3. A limited formulation on violation of the disclosure framework weakens the Code’s deterrent effect. To address this gap, the new framework should: 1) establish uniform sanctions that apply to all personnel for basic disclosure violations; and 2) introduce a system of differentiated sanctions linked to seniority. Under such a system, the same breach could attract progressively stricter penalties as the rank and responsibility of the personnel increases, recognising that lapses from Board Members carry higher institutional risks, and they are held to higher standards of accountability.

Second line of enquiry: Checking whether SEBI follows a role-based differentiation as regards investment restrictions, and if so, whether these restrictions permit reasonable market access

We frame this question in the context of the principle that public interest is at the core of institutional integrity.¹³ This requires employees of public institutions to separate their private interests from their public duties. Where conflicts arise, they should either dispose of such interests or recuse themselves from related decisions. Officers in roles especially prone to conflicts of interest must follow stricter protocols proportionate to the risks they face. Against this backdrop, we examine investment-related restrictions under SEBI’s disclosure framework.

SEBI framework

The Regulations impose a near-total ban on employees from making any direct or indirect investment in equity, equity-related instruments, and commodity derivatives, with limited and specific exceptions for units of mutual funds and non-convertible bonds.¹⁴ This prohibition extends to family members when the investments are funded by the employee or made on their behalf. In contrast, the Code only requires that Board Members disclose their and their family’s shareholdings, and that WTMs disclose “substantial transactions” by themselves and their family.¹⁵ This suggests that holding and transacting in shares is permissible for the Board, but not for employees governed by the Regulations, which place a general prohibition on equity and equity-related investments.

The reason for this differentiation is unclear; and while safeguards on those with access to market-sensitive information are necessary, a complete bar may disincentivise many from considering employment with the regulator.

Reforms proposed by the HLC and SMC

Disparity in investment restrictions between employees and the Board (barring PTMs) has been eliminated. The Board is now barred from dealing in direct equities, matching the rules applicable to employees. Both categories are instead permitted to invest in professionally managed pooled vehicles, provided that investments with a single intermediary do not exceed 25 per cent of their financial portfolio.

Pooled vehicles (e.g., mutual funds) are highly diversified instruments where investors have no control over selection of securities. The 25 per cent concentration cap forces all personnel to split investments across multiple asset managers and continuously monitor portfolio values to avoid any inadvertent breach due to regular market movements. Further, mutual fund returns depend on underlying securities, not the profitability of the asset manager. This change increases compliance burdens and is not solving for a real ethical risk.

The abovementioned equity trading ban has been extended to the spouses of all personnel. While aimed at preventing indirect conflicts, this treats the spouses merely as extensions and restricts their financial agency. This treats the spouses of junior HR or IT employees exactly the same as the spouse of the SEBI Chairperson. In contrast, a non-dependent parent, sibling, or adult child of a SEBI Board Member is permitted to trade in equities (as long as the relationship is disclosed).

The HLC has rejected the “blind-trust” investment route. Now, upon joining WTMs must liquidate, freeze, or sell (according to a pre-declared trading plan) their existing portfolios. This restriction might deter private sector experts from joining and compromise SEBI’s competence.

Position in other jurisdictions

The SEC and the FCA permit their employees to invest in equities, but impose strict prohibitions on high-risk activities. Specifically, the SEC prohibits short selling, margin trading, investments in its directly regulated entities and in IPOs.¹⁶ More importantly, employees may use the blind trust construct to manage conflicts. Therein, a filer does not need to report specific holdings or income from a qualified blind or diversified trust; instead, disclosure is limited to aggregate income categories for the filer, spouse, or dependent child.¹⁷ On the other hand, the FCA bans speculative transactions and direct dealings in securities of FCA regulated firms.¹⁸

Recommendations

We make the following recommendations in this regard:

1. Permit limited, low-risk market participation for all personnel, while simultaneously applying restrictions based on a personnel’s role sensitivity. Under such a system, direct investments in non-regulated entities, for e.g., any private company, could be allowed; since they are not regulated by SEBI.

2. Subject high-risk or sensitive investments to prior approval, while allowing lower value investments to proceed without pre-clearance. Here, SEBI should also introduce specific numeric thresholds to clearly distinguish between high-risk and low-risk investments.

3. For Board Members, a robust blind trust mechanism could be adopted, enabling them to retain their existing portfolios and organically profit from the same.

Third line of enquiry: Evaluating whether SEBI’s post-employment restrictions are permissive or restrictive

We now examine SEBI’s post-employment restrictions in the context of the principle that public institutions must have systems for comprehensive management and oversight of disclosure and conflict avoidance regimes.¹⁹ Such measures must provide for timely identification of “at-risk” activities and the adoption of suitable preventive measures. Methods such as divestment, recusal, or resignation, and re-arranging duties where necessary can be used in this regard. In this context, we specifically examine SEBI’s framework on post-employment restrictions.

SEBI framework

For all employees, the stipulated post-employment restriction period in the Regulations is one year from the date they “finally cease to be in the Board’s service”. Specifically, the Regulations provide that for a year after leaving SEBI, a former employee must seek approval from the competent authority²⁰ before: 1) taking up a commercial engagement (for example, offering private consultancy in areas where employees have gained insider knowledge or engaging in liaison work with SEBI); or 2) “associating with” a SEBI-registered intermediary. Interestingly, the Code does not envision any post-employment restrictions for the Board.

Post- Employment Restrictions —>	Commercial engagement	Associating with SEBI-registered intermediary	Joining body corporate wholly or substantially controlled by SEBI
Employees	Yes, with prior approval	Yes, with prior approval	Permitted
Board Members	Not specified	Not specified	Not specified

Further, the effectiveness of these restrictions on employees is undermined by a key ambiguity: the term “associated with” in the context of SEBI-registered intermediaries is not defined. This may prevent SEBI from clearly identifying and monitoring prohibited relationships with intermediaries.

Reforms proposed by the HLC and SMC

The SMC mandates that for one year after demitting office, a Board Member cannot accept employment with any securities markets service provider, market participant or any other person associated with securities markets. However, PTMs are exempt from this.

Further, the following restrictions apply uniformly to all personnel:

1. They must disclose information related to any negotiation for future employment. Once disclosed, they must be recused from matters involving prospective employers.

2. They cannot accept commercial employment (including with a SEBI-registered intermediary) for a period of one year after leaving the regulator, unless they obtain prior approval.

3. They cannot appear before or against SEBI in any recognition, adjudication, settlement, or approval matter for a period of two years from their date of retirement or relief. This also extends to contractual employees, consultants, and advisors.

Position in other jurisdictions

The SEC’s post-employment framework imposes a permanent ban on former employees from representing external parties in matters they directly worked on during their tenure. In addition, senior employees are subject to a one-year “cooling-off” communication ban, under which they may not contact or communicate with the SEC on behalf of another person or entity about specific matters they were involved with while at the SEC.²¹ By contrast, the FCA has a more flexible and individualised approach. Rather than imposing a blanket ban, the FCA’s post-employment policy is based on a case-by-case assessment of potential conflicts. Former officials are required to complete mandatory forms, which are reviewed to determine if their new role poses any risk.²²

Recommendations

We recommend that while a full one-year ban must continue to apply to all Board Members, certain modifications could be made to the uniform one-year post-employment ban applicable to all personnel:

1. Consider introducing a risk-based framework that reflects a personnel’s role and access to sensitive information.

2. Post-employment restrictions for junior or non-decision-making staff, should be less stringent, or waived in case of non-exposure to market-sensitive information.

Conclusion

On three key questions, we critically examined the existing framework, and conducted a comparative study of leading international agencies such as the OECD and the World Bank, and regulators like the SEC and FCA. Our recommendations employ insights from these comparisons, and emphasise adopting a tiered approach to disclosures, easing investment restrictions for junior personnel in non-sensitive roles, and implementing a risk-based assessment for post-employment restrictions for all personnel.

We suggest that SEBI’s conflicts of interest framework needs changes to address gaps and inconsistencies, and to bring it in line with prevailing international standards. This need for change is based on the requirements of consistency and comprehensiveness. An inconsistent policy, even if well-intentioned, creates regulatory gaps and undermines public trust. Vague definitions and the absence of uniform standards leave room for loopholes and weaken institutional credibility. SEBI’s revised conflicts of interest framework, therefore, must be anchored in clear, consistent, and proportionate standards to safeguard effective market governance without compromising on institutional integrity.