MUMBAI: Even as India’s capital markets have undergone sweeping regulatory reforms in recent years – from tightening disclosure norms to enhancing investor protection – one critical vulnerability has remained largely unaddressed: conflict of interest involving the regulator’s own board members and key officials.
This oversight, though long acknowledged in hushed tones, gained wider attention after the Hindenburg-Adani controversy, which didn’t just raise questions about one conglomerate’s practices but also drew scrutiny towards the functioning of Sebi itself.
Allegations that indirectly touched on former Sebi Chairperson Madhabi Puri Buch underscored a crucial issue: how do we ensure transparency and accountability within the very institution tasked with safeguarding market integrity?
Panel to study conflict of interest
Now, Sebi is finally moving to address this. On April 9, the regulator constituted a six-member high-level committee to review and revamp its internal framework for handling conflict of interest and disclosure norms.
The committee will look into matters such as declaration of assets, liabilities, investments, and any personal interests of board members and key officials.
The panel will be chaired by former Chief Vigilance Commissioner Pratyush Sinha, with former MCA Secretary and IFSC Authority Chairman Injeti Srinivas serving as vice chairman.
Veteran banker Uday Kotak – who earlier led Sebi’s committee on corporate governance – is also on the panel, alongside former Sebi whole-time member G Mahalingam, former Deputy CAG Sarit Jafa, and IIM Bangalore’s Professor R Narayanaswamy.
Their brief is wide-ranging. The committee will not only identify gaps and ambiguities in existing rules – some of which date back to 2008 and have seen little change – but will also recommend a modernised, robust framework to prevent and manage conflicts.
This includes defining a clear recusal policy, improving disclosure requirements, ensuring digital tracking of records, and creating a mechanism to deal with public complaints on such matters.
Hindenburg episode
The Hindenburg episode brought to light just how exposed regulators can be when governance structures lag behind. The report indirectly raised doubts over the impartiality of Sebi, especially as it was investigating the same corporate group that was under fire globally.
Though no direct conflict was established, the lack of transparency around the regulator’s own leadership prompted calls for deeper reform.
Additionally, Sebi’s move comes at a time when concerns over the “revolving door” between regulators and private industry are rising.
Several instances in the past have seen former officials joining private entities soon after demitting office, and vice versa, blurring lines of independence. Without firm checks and clear disclosure protocols, even perceived conflicts can erode investor confidence.
The committee is expected to submit its report within three months. Its recommendations will be taken up by the Sebi board for approval.
As India seeks to establish itself as a credible, rules-based destination for global capital, this initiative could not be more timely.
Restoring faith in the regulator’s independence is as essential as enforcing compliance among market participants – and that effort must start from within.
