SEBI conflict rules 2026: disclosures, bans, cooling-off

What SEBI has changed and why it matters

Markets regulator SEBI has notified new rules for its employees that set out a comprehensive conflict-of-interest framework, tighter investment restrictions, and enhanced disclosure norms. The notification also introduces a two-year cooling-off period for employees after they leave the regulator. The changes come alongside SEBI board decisions to overhaul conflict-of-interest and disclosure norms for its top leadership and board members as well.

SEBI’s board has approved a new Code of Conduct for its Board Members, positioned as the next step in a broader clean-up of internal governance. The Code of Conduct for Members of SEBI, 2026 has been cleared, along with corresponding amendments to the SEBI (Employees' Service) Regulations, 2001 (ESR). The stated intent is to strengthen how conflicts are identified, disclosed, and managed across the organisation.

Recusal rules: when employees must step aside

A key part of the employee rules is the requirement to recuse from matters involving a conflicted relationship. The framework covers situations where the employee has a material financial interest in the concerned entity. It also includes circumstances where a close friend or associate from the previous three years is involved. And it extends to cases where family, professional, or other relational interests could create an actual or perceived bias.

Employees must disclose potential conflicts at the earliest opportunity under the notified rules. The design is to reduce discretion in whether a conflict exists by describing specific relationships and thresholds. SEBI has also indicated it will introduce a digital system and formal recusal recording to track disclosures and decisions regarding recusals.

Material financial interest: the Rs 20 lakh and 5% tests

The rules set a defined threshold for what counts as a “material interest”. An employee will be considered to have a material interest if the employee and family members together hold non-permitted investments exceeding Rs 20 lakh in an entity, measured on acquisition cost. A material interest can also be established if such investments account for more than 5 per cent of the employee's total financial investment portfolio.

By spelling out portfolio-based and value-based triggers, the framework ties conflict assessment to measurable data points. This can matter when employees are involved in decisions impacting specific intermediaries or listed entities. It also links directly to the disclosure system because the employee is required to surface potential conflicts early.

Uniform trading and investment restrictions extended to top leadership

SEBI’s board has accepted key High-Level Committee (HLC) recommendations to strengthen the conflict-of-interest framework for board members and officials. One of the central decisions is “uniform investment and trading restrictions”. Employee-level trading and investment restrictions in equity and equity-related instruments (except mutual funds) are extended to the Chairman and Whole-time Members (WTMs).

The HLC recommendations also note that investments in pooled vehicles are permitted where they are professionally managed by regulated intermediaries. In parallel, other parts of the publicly described package include a cap for members on investments in pooled vehicles like mutual funds, with a maximum of 25 per cent of their portfolio cited in the proposals.

Family coverage broadened and restrictions extended

The investment restrictions applicable to the Chairman, WTMs, and employees may also apply to their spouse and dependent family members, except in unlisted securities, ESOPs, and discretionary PMS. These restrictions are intended to be applied prospectively, while existing investments are to be grandfathered.

SEBI’s broader proposals also substantially broaden the definition of ‘family’ for disclosure and conflict management. It covers a board member’s or employee’s spouse, dependent children, anyone for whom they act as legal guardian, and other blood or marital relatives who are financially dependent on them. The investment restrictions would extend to spouses and financially dependent relatives, regardless of the source of funds, as described in the proposals.

Joining SEBI as Chairman or WTM: what happens to existing holdings

For those joining as Chairman or WTM, the framework lays down steps around investment management. Existing investments, other than permitted investments in mutual funds and pooled vehicles, are to be liquidated, frozen, or disposed with an approved trading plan or with prior approval, upon joining. Equity and equity-linked holdings, including unlisted holdings, are to be liquidated or frozen during tenure.

The recommendations also require that any vested options must be exercised prior to joining SEBI. These provisions aim to reduce exposure to instruments that could create real or perceived conflicts during the term in office.

Insider status and limits on portfolio concentration

Chairman and WTMs have been expressly included within the definition of “insider”. This places them under the same insider trading restrictions that apply in SEBI’s insider trading framework, aligning them closer to the constraints already applicable to employees.

SEBI also introduced a portfolio concentration limit for regulated entities. Investment exposure to a single SEBI-regulated intermediary by the Chairman, WTMs and employees is capped at 25 per cent of the financial portfolio, with recusal obligations upon breach. This rule links personal exposure to decision-making safeguards.

Expanded disclosures: what must be declared and when

The accepted recommendations expand the disclosure framework. Chairman, WTMs and employees are required to make initial, annual and event-based disclosures of assets, liabilities, trading activities and relationships. Members may make disclosures at the time of assumption of office, including shareholding and past professional assignments, and the lookback period is harmonised to three years.

Part-time members from the Ministry or RBI will continue to follow existing disclosure practices of their parent organisation. SEBI has also aligned public disclosure of immovable property by the Chairman, WTMs, Executive Directors and Chief General Managers with government norms, while details of assets and liabilities are to be internally disclosed to SEBI. Another explicit requirement is disclosure of negotiations or agreements for future employment.

Gifts, outside roles, and confidentiality in the board code

The Code’s conflict definition focuses on personal interest or association likely to influence a board decision, as viewed by an independent third party. It requires disclosures and recusals, with a strict bar: no member shall hear or decide any matter where a conflict exists. If a member is unsure, they must seek a determination from the Chairman, and if the Chairman is in doubt regarding their own conflict, she must seek determination from the Board.

The Code also restricts outside roles. Board members are not allowed to hold any other office of profit, and are not allowed to engage in professional activity that entails receipt of salary or professional fees. On gifts, members are not allowed to accept gifts from regulated entities to the extent possible, and any gift exceeding Rs 1,000 must be handed over to SEBI’s General Services Department.

Cooling-off period and new ethics infrastructure

SEBI’s employee notification introduces a two-year cooling-off period after employees leave the regulator. Related measures described in the broader reform package include barring post-retirement appearances before SEBI for two years. These restrictions are framed as safeguards against conflicts tied to future employment or influence.

The reforms also include institutional changes: an Office of Ethics and Compliance, an independent Oversight Committee on Ethics and Compliance, and a secure anonymous whistleblower system. SEBI has stated that the board members, including external members, have agreed to adopt the Code as a voluntary code, while for employees the amended ESR will be notified and become a statutory requirement.

Key thresholds and requirements at a glance

Why these changes are being watched

SEBI’s decisions combine process controls like recusals, quantitative thresholds, and portfolio limits with expanded disclosures across assets, liabilities, trading activities, and relationships. The inclusion of the Chairman and WTMs as “insiders” aligns top decision-makers with the same restrictions applied to employees. The focus on prospective application with grandfathering of existing investments is also explicitly stated, which can influence how quickly the new constraints bite.

The measures are also structured to capture conflicts beyond direct holdings, through broader family definitions and disclosures of future employment negotiations. Separately, the mix of voluntary adoption for members and statutory requirements for employees reflects different legal pathways SEBI is using to implement the changes.

What to watch next

SEBI has already approved the Code of Conduct for Members of SEBI, 2026 and amendments to the ESR, 2001 to operationalise the HLC recommendations. Certain critical provisions have also been referred to the government for consideration, according to SEBI’s disclosures on the process. Investors and regulated entities will watch how the digital recusal and disclosure system is implemented in practice, and how consistently the new limits and reporting timelines are enforced.