The Securities and Exchange Board of India’s (SEBI) High-Level Committee (HLC) has suggested a raft of reforms, including a multi-tier disclosure regime, investment restrictions, structured recusal processes and a robust whistleblower system to safeguard investor interest and orderly functioning of the securities market.Set up in March this year to review conflicts of interest and the disclosure framework of its board members, the committee reviewed SEBI’s existing code on conflicts of interest for board members and employees’ service regulations. It noted that the current framework is inadequate and requires strengthening.The six-member committee said that the adoption of its recommendations will bring SEBI in line with global best practices, enhance its credibility, and strengthen its independence and integrity as the country’s capital market regulator. Here are some of the major recommendations.Public disclosure for top brassThe committee recommended that the chairman, whole-time members (WTMs) and SEBI employees at the level of chief general manager (CGM) and above be required to make a public disclosure of the assets and liabilities statement, considering their responsibilities and discretionary powers.“Applicants for the position of chairman and WTMs and for lateral entry positions must disclose actual, potential, and perceived conflict-of-interest risks of financial and non-financial nature to the appointing authority,” the committee proposed.Uniform investment restrictionsThe high-level committee proposed uniform application of restrictions on investments and trading to the chairman and WTMs as applicable to employees under the SEBI (Employees’ Service) Regulations, 2001 (SEBI ESR). It suggested bringing the chairman and the WTMs within the definition of ‘insider’ under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015.The committee said that the chairman, WTMs and employees will be allowed new investments in any pooled vehicle if the scheme is professionally managed, and the market intermediary concerned is regulated by any of the financial sector regulators in the country. These investment restrictions, however, would apply to members and employees prospectively.Story continues below this adPart-time members (PTMs), who do not handle SEBI’s day-to-day regulatory activities, are exempted from the investment restrictions. However, they would be obliged to make necessary disclosures and not trade based on unpublished price-sensitive information (UPSI).The investment restrictions should also apply to the spouse, irrespective of their financial status or the source of the investment — whether it is the chairman, WTM, employee, or the spouse’s own money and relatives or other persons, who are financially dependent on them substantially.After joining office, the chairman and the WTMs would be required to choose one of the four options for investment held by them – liquidate the investments, freeze the investments, sell the investments according to a trading plan and sell the investments without a trading plan with prior approval.Managing conflicts of interestThe committee examined the definition of family for board members for the purpose of determining any conflict of interest. The current definition of family in clause 1(i) of the SEBI Code 2008 comprises a spouse and dependent children under 18 years of age. In contrast, the SEBI ESR has a broader definition of ‘family’, which includes spouse, children, and any other person who is related by blood or marriage to the employee or their spouse and is wholly dependent on the employee.Story continues below this adTo maintain parity between board members and employees and bring in more transparency by aligning with international best practices, the committee recommended that the definition of family will include spouse, dependent children, any person for whom the member/ employee serves as a legal guardian and any other person related to, by blood or marriage to the employee or to his spouse and substantially dependent on such employee. This will apply to all board members and employees, including contractual appointees and those on secondment.Robust recusal frameworkRecusal being a key arrangement to deal with a situation involving conflict of interest, the committee recommended that SEBI put in place a robust framework for this.“The committee recommends that a summary of recusals by the chairman, WTMs/PTMs and SEBI employees of the level of chief general manager and above be published in the Annual Report of SEBI,” it said. Currently, recusals by the Chairman, WTMs/PTMs and employees are not made public.Secure whistleblower systemThe committee said that a strong whistleblower system is more than a complaint channel; it is a safeguard for institutional integrity.Story continues below this adThe committee recommended the establishment of a secure, confidential and anonymous whistle blower system for reporting actual, potential, or perceived conflicts of interest by board members, employees, and external stakeholders, including market infrastructure institutions, market intermediaries, market participants, and the public. The system should have strong safeguards to protect complainants against retaliation.Post-retirement restrictionsThe committee said that a former member or employee may not appear before or against SEBI in any recognition/adjudication/settlement/ approval matter for a period of two years from the date of retirement or from the date of being relieved from SEBI. This will be applicable to contractual employees, consultants, and advisors.Other key reformsThe committee also recommended prohibition on acceptance of gifts, directly or indirectly, by the chairman and the WTMs from any person with whom they have or are likely to have official dealings on the lines of the SEBI ESR. It proposed a new ethics infrastructure under which an Office of Ethics and Compliance (OEC) and an Oversight Committee on Ethics and Compliance (OCEC) would be created. It also suggested the establishment of a secure, technology-based, state-of-the-art system that incorporates artificial intelligence and data analytics to prevent, predict, detect, and address conflicts of interest.The regulator formed the expert committee in March this year after former SEBI chief Madhabi Puri Buch faced allegations from now-defunct US-based short seller Hindenburg Research, of conflicts of interest.Story continues below this adIn August 2024, Hindenburg had alleged that Buch and her husband, Dhaval Buch, had a hidden stake in obscure offshore funds based in Bermuda and Mauritius linked to the Adani Group and were allegedly used in a money siphoning scandal. The Adani Group and the Buchs had denied the allegation.The expert committee was tasked with determining the adequacy of SEBI’s framework regarding conflicts of interest and disclosure of interests, and to propose reforms aimed at enhancing transparency, accountability, and ethical standards.The committee membersThe HLC comprised eminent former regulators, public officials, and industry leaders, chaired by Pratyush Sinha, a retired Indian Administrative Service (IAS) officer and former Chief Vigilance Commissioner.Other members include Injeti Srinivas, former secretary, Ministry of Corporate Affairs & former chairman, IFSCA; Uday Kotak, Founder & Director, Kotak Mahindra Bank; G Mahalingam, former Executive Director, RBI and former Whole Time Member, SEBI; Sarit Jafa, former Deputy Comptroller and Auditor General; and R Narayanaswamy, former professor, IIM, Bangalore.