Inside SEBI’s major 2025 Ethics and Governance Reforms

Background and Context

The push to reform SEBI’s ethics and conflict-of-interest rules began after public allegations surfaced against SEBI’s former Chairperson and some other senior officials. They were accused of having undisclosed financial interests that could have influenced their decisions.
Although the claims were denied, they triggered public concerns and intense debate about transparency and ethics in the working of SEBI. This incident highlighted the need for stronger safeguards to maintain public trust in SEBI’s integrity.

Formation of the High-Level Committee

To address these concerns, SEBI under its new Chairperson Tuhin Kanta Pandey, set up a six-member High-Level Committee in March 2025, led by former Chief Vigilance Commissioner Pratyush Sinha.
The committee included experts from the regulatory, public, and academic sectors and had been tasked with reviewing SEBI’s current policies on conflicts of interest, disclosure norms, and governance practices for its officials and board members.

Objective: Enhancing Transparency and Accountability

The committee’s goal was to design a strong, legally backed system that ensures ethical conduct, proper declarations, and effective conflict management based on global best practices.
The major purpose of the 2025 IBC reforms was to foster public trust and enhance market integrity through clear and transparent disclosures, establish consistent and enforceable conflict-of-interest rules, and create an independent Office of Ethics and Compliance to oversee the implementation of these standards. Additionally, the amendments also addressed existing deficiencies by clarifying vague definitions and strengthening review processes to ensure a more robust and accountable insolvency framework.

Conflict-of-Interest Rules and Definitions

Uniform Definitions of Family and Relatives

The SEBI committee has proposed standardizing and broadening key definitions such as “family,” “relatives,” “associated persons,” and “financial interests.”
This ensures that any potential conflicts arising from close family or business relationships are properly captured. The expanded scope would include spouses, children, parents, siblings, dependent relatives, and entities where they could potentially

hold a significant interest or control.
This approach closes loopholes and aligns SEBI’s framework with international best practices.

Mandatory Conflict-of-Interest Declarations

All SEBI Chairpersons, Whole-Time Members, Board Members, and senior officials must declare existing or potential conflicts of interest at the time of appointment, including financial holdings, affiliations, and family connections with SEBI-regulated entities.
These declarations will be reviewed annually or updated when major changes occur, ensuring transparency and timely action such as recusals or divestments when needed.

Recusal and Ethics Audits

A clear recusal mechanism will require officials to step aside from decisions where conflicts exist or may appear to exist.
The proposed Office of Ethics and Compliance will conduct regular ethics audits to monitor compliance, review disclosures, and recommend corrective actions.
This continuous oversight will strengthen SEBI’s culture of integrity and accountability.

Investment Restrictions and Trading Controls

Classification of Chairperson and WTMs as Insiders

The SEBI committee has proposed classifying the Chairperson and Whole-Time Members as “insiders” under SEBI’s insider trading regulations.
This means they will be subject to the same strict disclosure and trading restrictions as market participants who have access to confidential, price-sensitive information.
The move aims to prevent misuse of insider information, strengthen ethical conduct, and enhance market confidence by holding SEBI’s top officials to the same standards as those they regulate.

Restrictions on Personal Investments and Trading

The committee recommends uniform and stringent controls on personal investments and securities trading by SEBI’s senior leadership Key restrictions include a prohibition on trading securities of entities regulated or supervised by SEBI during one’s tenure and for a cooling-off period thereafter, ensuring no conflict of interest. Additionally, all personal trades require pre-clearance and must be reported to maintain transparency. Furthermore, there is a strict ban on accepting any gifts or benefits from regulated entities, designed to prevent undue influence and uphold the highest standards of ethical conduct.

Options for Existing Investments at Time of Appointment

For officials who already hold investments before joining SEBI, the panel suggests flexible management options such as:

Upon appointment, insiders are required to either sell or liquidate their investments promptly or freeze their holdings to prevent any trading during their tenure. Alternatively, trading can be conducted through a pre-approved plan that complies with insider trading regulations. In cases where divestment is not feasible, approval must be sought from SEBI’s Ethics Committee to retain the investment, ensuring rigorous oversight and adherence to ethical standards.

Establishment of the Office of Ethics and Compliance 

To strengthen oversight, SEBI will create a dedicated Office of Ethics and Compliance. This office will be responsible for:

The responsibilities include managing disclosures related to assets and conflicts of interest, ensuring compliance with trading and gift restrictions, conducting ethics audits and investigations, and overseeing the procedures for recusal and conflict management. These measures collectively promote transparency, accountability, and ethical conduct within the regulatory framework.

The OEC will act as an independent body within SEBI, ensuring that ethical standards are consistently maintained.

Role of the Chief Ethics and Compliance Officer and Oversight Committee

The OEC will be led by a Chief Ethics and Compliance Officer a senior, independent official who reports directly to SEBI’s Chairperson and Board.
An Oversight Committee made up of external experts will supervise the OEC’s work to ensure transparency, fairness, and accountability.
Together, the CECO and the Oversight Committee will help enforce ethics rules, resolve conflicts, and guide officials on complex ethical matters.