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SEBI to take action on officials divulging confidential information to “outsiders”

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It has been recently reported that an internal communique was issued by SEBI to all SEBI officials that they could face “appropriate action” for divulging confidential information to “outsiders”, including former colleagues.

The requirement for SEBI employees to maintain strict confidentiality and refrain from using or sharing sensitive information is a long existing obligation. Regulation 49 of the SEBI (Employees’ Service) Regulations, 2001 mandates SEBI employees to maintain strictest secrecy regarding affairs of the Board, unless compelled to do so by the judicial or other authority, or unless instructed by superior officer in discharge of their duty. This regulation further mandates that an officer shall not communicate UPSI except when required to do so in the course of official duty.

The article quotes experts within SEBI and former regulatory officials who opine that sometimes reminders about the rules are given to employees. Recent media reports may have triggered the SEBI HR department, with regulatory changes and a new team in SEBI focused on information leaks. This reiteration aims to increase awareness and ensure compliance with high standards of conduct, particularly for new employees. Even retired employees are expected to adhere to a satisfactory code of conduct under pension regulations, although regulatory bodies like Reserve Bank of India (RBI) and SEBI rarely take action on this.

SEBI is often considered one of the most powerful financial regulator in the world due to its comprehensive jurisdiction and access to substantial amounts of data. SEBI has very wide powers with respect to investigation wherever it has reasonable grounds to believe that any transaction is detrimental to the investors or if any person or intermediary associated with securities market has violated the SEBI Act or rules laid thereunder. Recognizing these wide powers, the Justice Sapre Committee Report in the Adani Group – Hindenburg Research case had also advised adopting an enforcement policy that would lay down criteria on the basis of which SEBI may choose whether to initiate proceedings and what type of proceedings to initiate, in a clear, reasoned and non-arbitrary fashion and to also adopt a firm timeline to complete proceedings. These wide powers to initiate investigation without the hinderance of time, gives SEBI access to a large repository of data and thus, need to maintain confidentiality is paramount.

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