A newly established high-level committee (HLC) by the Securities and Exchange Board of India (SEBI) is taking significant steps to refine conflict-of-interest guidelines for board members. This initiative aims to solicit recommendations from employees to enhance the existing code.

Key Focus Areas for the Conflict-of-Interest Code

During its inaugural meeting last week, the committee identified two pivotal elements that will shape the revised code: the definition of family and the frequency of disclosures. A source familiar with the discussions emphasized the importance of these aspects, stating, "There are robust guidelines that must be adhered to by market participants."

Addressing Modern Challenges

Under the leadership of former Chief Vigilance Commissioner Pratyush Sinha, the six-member committee is keen on addressing the shortcomings of the current code, which hasn’t been updated since 2008. The landscape has drastically evolved with advancements in technology and the rise of social media, necessitating a fresh perspective on these regulations. The committee also plans to analyze frameworks from developed markets to gather insights.

Currently, the 2008 code defines "family" as including only spouses and dependent children under 18. Additionally, while disclosures are typically kept confidential, exceptions exist for certain scenarios.

Comprehensive Review Mandate

The committee’s responsibilities encompass a thorough evaluation of provisions related to conflict of interest, disclosures about property, investments, liabilities, and other pertinent issues involving board members and officials. Furthermore, it aims to establish a transparent mechanism for the public to voice concerns regarding potential conflicts of interest, including a streamlined process for addressing complaints.

The committee is on track to present its recommendations within three months of its formation date on April 9.

Historical Context and Future Directions

The establishment of this committee was approved during SEBI’s first board meeting under the leadership of chairperson Tuhin Kanta Pandey. This move follows previous allegations of conflict of interest involving Pandey’s predecessor, Madhabi Puri Buch, in connection with the Hindenburg investigation into the Adani Group.

In a recent interview, Pandey emphasized the necessity for clarity in the framework, stating, "It’s crucial to define the dos and don’ts, especially in grey areas. We require a robust monitoring system. If someone has recused themselves, there should be a pre-established database." He highlighted the need for a comprehensive definition of what constitutes a conflict of interest.

Conclusion

As the committee embarks on this significant review, the focus remains on adapting to contemporary challenges while ensuring that regulatory frameworks maintain their integrity. The upcoming recommendations are highly anticipated by stakeholders within the financial sector.

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