SEBI refines guidelines to target employee misconduct

Any employee suspected of impropriety, engaging in corrupt practices, or wielding authority with malicious intent will be subject to action

File photo of SEBI headquarters, Mumbai (photo: IANS)
File photo of SEBI headquarters, Mumbai (photo: IANS)

NH Business Bureau

Under the amended rules governing employee services, SEBI (Securities and Exchange Board of India) has empowered competent authorities to take decisive action, including the recovery of pecuniary losses incurred by the board owing to employee misconduct. This includes the ability to reclaim such losses from pay and other entitlements to staff members.

To bolster accountability and integrity within its ranks, SEBI has announced other stringent measures aimed at curbing misconduct and corrupt practices among employees. The regulatory body unveiled its new framework through a notification issued on 6 May, outlining rules that will apply to former employees who have resigned, retired, or completed their deputation tenure.

The notification specifies that such measures can be initiated if an employee is suspected of acting improperly, engaging in corrupt practices, or wielding their authority maliciously. SEBI emphasised that the new framework is designed to maintain accountability across all stages of an employee's tenure, extending even to those who have left the organisation.

SEBI asserted its authority to withhold gratuity payments during the pendency of any disciplinary proceedings initiated against an employee. This decision to withhold gratuity, either partially or in full, underscores the seriousness with which SEBI is approaching allegations of misconduct within its workforce.

Observers said the recent scrutiny faced by the Adani Group with SEBI's latest guidelines to employees, also raised questions about the regulatory body's response to potential breaches and misconduct within the organisation.

As six Adani Group firms received show cause notices from SEBI for alleged breaches in related-party transactions and non-compliance with listing regulations during the quarter ending 31 March 2024, the spotlight has intensified on SEBI's own internal governance. SEBI's investigation into the Adani Group follows allegations raised by US-based Hindenburg Research, whose findings were later echoed by the regulator in its report to the Supreme Court.

The report identified 13 specific related-party transactions under investigation, mirroring concerns highlighted in the Hindenburg Report. With the latter questioning the appropriateness of over 6,000 related-party transactions and criticising SEBI's level of compliance and scrutiny, the parallel between the Adani Group's scrutiny and SEBI's internal governance underscores the need for stricter adherence to regulatory guidelines and heightened vigilance within the organisation.

The regulatory body clarified that gratuity payments will only be disbursed following the conclusion of disciplinary proceedings, contingent upon the outcome of the investigation. This measure aims to ensure that any potential financial liabilities arising from employee misconduct are addressed effectively and transparently.

SEBI claimed its proactive stance reflected its commitment to upholding the highest standards of professionalism and ethical conduct within the organisation. By implementing these stringent rules, the regulatory body seeks to safeguard its reputation and bolster investor confidence in India's financial markets.

Last year, SEBI had issued a reminder to its officials regarding the gravity of disclosing confidential information to external parties, including former colleagues. As reported by the Economic Times in July 2023, an internal circular stressed that such disclosures could constitute a "breach of secrecy".

The regulatory body has underscored the importance of adhering to strict guidelines when engaging with individuals outside the organisation, including the media. SEBI has unequivocally stated that any breach of this protocol will be treated seriously and may result in disciplinary action in accordance with the organisation's employee service regulations.

Over the years, a SEBI Employees’ Association emerged in response to regulatory officers facing a series of CBI (Central Bureau of Investigation) inquiries across different cases, predating the regulatory body's absorption of the Forward Markets Commission (FMC).

Established in 1995, the association operated for a few years before becoming non-operational. However, it was revitalised in 2015. The committee serves to facilitate communication between the board and employees, addressing market-related issues and employee concerns alike, officials said.

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