The outcry surrounding current SEBI Chairperson’s retiral benefits and past investments has drawn attention to the need for better disclosures for the regulator’s top brass.
Current rules prescribe that such persons do not, and will not, have any financial or other interests that may prejudicially affect their functions as chairperson or board members. A code for board members mandates discloser of shareholdings and that of their immediate family within 15 days of assuming office and at the end of each financial year.
Notable gaps
Yet, there are notable gaps, particularly concerning financial benefits such as stock options or retirement packages from previous employers, said market watchers.
“The existing framework does not explicitly address how these benefits should be managed once an individual takes on a regulatory role. The confidentiality surrounding disclosures restricts public access and oversight, raising concerns about the overall effectiveness of these measures,” said Kunal Sharma, Partner, Singhania & Co.
SEBI ushered in a disclosure-based regime in the 1990s, requiring initial and periodic disclosures of material and deemed material events from market participants. Something similar could be implemented for SEBI, believe experts, with some disclosures in the public domain. While the SEBI Charter offers a foundational framework, a statutory fervour would enhance its legal sanctity and enforceability, experts said.
“The government should outline principles for identifying conflicts and require the recusal of the Chairperson or board members when a conflict is perceived. Stakeholders should be empowered to flag any conflicts they perceive involving such persons. Divesting any conflicting investments and establishing independent third-party reviews would also help,” said MS Sahoo, former Chairperson of the Insolvency and Bankruptcy Board of India and Sumit Agrawal, Founder, Regstreet Law Advisors.
The success of the regulator’s current disclosure framework hinges on real-time monitoring, enforcement and data verification. “There should be stricter pre-approval processes, regular audits and automated reporting for senior personnel in regulatory bodies,” said Kinjal Champaneria, Partner, Solomon & Co.
An email sent to SEBI did not get a response.
In the US, senior officials are often required to divest from or place their financial holdings into blind trusts to avoid conflicts of interest, said experts. Former US Secretary of Transportation Elaine Chao, for instance, divested from various investments, including those in her family’s shipping business, upon her appointment. Chao’s divestiture was in compliance with ethics regulations designed to prevent conflicts of interest in her role overseeing transportation policies and regulations. Other such examples include Tom Price, Michael Pompeo and Henry Paulson.
Ensuring transparency
The US Securities and Exchange Commission (SEC) mandates detailed annual disclosures of financial interests, which are publicly accessible to ensure transparency. The SEC has recently updated its ethics rules with expanded restrictions on financial industry sector funds and automated reporting from financial institutions on employees’ securities transactions.
Shriram Subramanian, Founder and Managing Director of proxy advisory firm InGovern Research Services, said the government should make it mandatory for senior level appointments of all regulatory bodies including RBI, IRDAI and SEBI to transfer their assets to third party trust to manage as done in the US and proper disclosure should be made to the government.
“Requiring SEBI’s senior staff to divest from or place their investments into blind trusts could effectively mitigate potential conflicts of interest. Mandating annual public disclosures of all financial holdings, including investments and stock options, would enhance transparency and bolster public trust,” said Sharma.
(With inputs from Suresh Iyengar)
