Securities and Exchange Board of India chairman Tuhin Kanta Pandey on Wednesday exhorted banks to strengthen their internal controls to prevent a breach of insider trading regulations.
The regulator noted that weak controls were the main cause of fraud.
“Insider trading risks thrive where controls are weak — where processes are unclear, responsibilities are undefined, and oversight is inconsistent,” Pandey told bank CEOs. The meeting with bank chiefs comes against the backdrop of SEBI’s June interim order against some top executives at Indusind Bank for violation of insider trading norms.
Safeguarding sensitive information
Urging banks to accord topmost priority to safeguard unpublished price-sensitive information (UPSI), the SEBI chairman said that a robust control mechanism would ensure accountability for every piece of UPSI. Moreover, it would also make sure that disclosures are timely and accurate. Employees would also be clear about their responsibilities if policies were framed, a code of conduct was in place and training was imparted periodically.
Pandey warned that information shared informally at meetings or over email, should be considered a serious breach.
“A single leak can travel across digital networks in seconds, and there is no way to undo the damage to stock prices, to investor confidence, or to your bank’s reputation,” he said.
Tools for compliance and accountability
The SEBI chief said a Structured Digital Database (SDD) could be a critical tool to uncover trails of info-leaks. “When a regulatory authority comes knocking, your ability to instantly and comprehensively demonstrate who knew what, and when, will be your greatest defence,” Pandey said. Strengthening compliance with the prohibition of insider trading (PIT), is a cornerstone of good governance and ethical leadership, he said.
He also reminded banks they shoulder dual responsibilities — as listed entities and as custodians of sensitive information belonging to other listed firms. The role of the Compliance Officer under the Prohibition of Insider Trading (PIT), he said was key.