As 2024 came to an end, Sebi decreed that the compliance officer (CO) of a quoted entity will be an officer no more than “a level below the Board of Directors.” The phrase, which sounds more like real estate jargon than the regulatory mandate, triggered a wave of applications to Sebi, seeking lighting in this corporate riddle.
Those responsible for decoding regulations and guaranteeing the adhesion found with the issue of regulatory orientation to discover where they are supposed to sit in the hierarchical order!
Sebi responded with a circular clarifying that ‘a level below the Board’ refers to the organizational level below the managing director (MD) or the full -time director (WTD), or, in its absence, the Executive Director (CEO).
He clarified even more through interpretive letters that this refers to the formal hierarchical level, not only informing relationships. Therefore, an officer placed several lower levels in the organizational table, but directly informing the MD/WTD/CEO would not satisfy the regulatory requirement.
Intention of clarifications
This clarification affirms the regulatory intention: CO must occupy a position of sufficient seniority and independence, according to the seriousness of its responsibilities.
The clarification inadvertently combines MD/WTD/CEO with the Board to determine the hierarchical placement of the CO. This blur for essential conceptual and functional distinction between government and management could have significant implications for corporate governance.
When interpreting that the ‘Board’ means MD/WTD/ED, the market runs the risk of displacing the responsibility for the supervision and administration of the Board, where it belongs correctly, to the executive management, without mmarning the architecture itself of the responsibility.
More importantly, this interpretation seems to deviate from the intention behind the regulatory change. The change voted for the recommendations of the “expert committee to facilitate the ease of doing business and the harmonization of the provisions of ICDR and LODR regulations.”
Duration consultations, the interested parties had suggested to place the CO -E level below the MD/WTD/CEO to ensure that the position has enough authority. However, after deliberation, the Committee recommended a greater elevation, placing the “no more than one level below the Board”.
Justification: the authority and height of CO must match their fundamental role in guaranteeing governance. The Sebi Board accepted this recommendation, and rightly, and modified the regulations accordingly.
The divergence between the regulatory text and its subcontractive interpretation highlights a broader theme found in the regulatory implementation. Economic regulations evolve in response to market realities, and a certain degree of course correction is inevitable. These instances of interpretive derivation could be minimized by adopting the regulatory impact evaluation (RIA).
The disposition of the current president of Sebi to institutionalize RIA is a welcome movement towards a more coherent and effective regulation. It would improve the quality of the regulation ensuring that the regulations are clearly understood by both the regulator and the regulated.
Despite some referrals, this marks a promising beginning. The underlying regulatory intention and direction remain solid. The objective is clear: to raise the position of the CO to allow it to carry out its effective responsibilities.
According to Sebi regulations, CO has critical responsibilities: guaranteeing compliance with all applicable laws both in letter and spirit, which serves as the main interface with regulators, validating precision and completing the claim mechanism. These are not procedure or mechanical tasks; They are fundamental for the “government”, ensuring responsibility, transparency, equity and regulatory integrity.
CO is possibly the custodian of governance. Sitting in the Board Room as a de facto power for the regulator, the Co -Translates Rules in practice, incorporates ethical discipline and avoids regulatory sliding. Compliance, in this sense, is not a subset of governance: it is governance in action. That is why the entities listed have a quarterly compliance report on corporate governance, signed by the CO or CEO, an unequivocal recognition of the role of CO and its parity in response.
Collecting the centrality of CO’s role, Sebi further strengthened the CO profile. The CO of a listed entity must: be in full -time employment; be designated as a key managerial staff; Be a qualified company secretary; Not designated in a provisional base, the vacancy in the role must not exceed three months; And most importantly, it maintains a position of no more than one level below the Board of Directors.
Changing roles
These changes are far from being cosmetics. They reflect a deeper recognition that, in an increasingly complex regulatory landscape, the role of the evolution of a rule executor to a strategic governance facilitator. It is now expected that CO will be “alter ego” for the board, both in position and perception. It is time for CO to assume the role of governance director, one that does not simply guarantee compliance, but rather shapes, maintains and manages the organization’s governance architecture. This causes a broader question: if the governance is so central to the corporate functioning that a dedicated officer is elevated to the nearby state, why should the same standard be applied to regulators and governments? After all, regulators and while are no less complex than large corporations; In fact, bets, particularly around conflicts of interest, can be even higher.
Regulatory failures, ethical lapses, breach of the procedure or negligence of constitutional principles in the design and execution of public policies can have long -range consequences for citizens and institutions equally. However, in the government sector, governance responsibilities remain diffuse, fragmented and buried within bureaucratic silos, leaving a critical gap in responsibility and coherence.
Taking the example of Sebi, the Government must institutionalize the main governance officials in each ministry and regulatory body: the officers empowered, the resources and have not placed more than one level below the cabinet/regulatory board, with a clear mandate to incorporate integrity, compliance and transparency in the public administration.
The government is no longer just a corporate ideal; It is a public imperative. In a world where institutions, markets and governments are increasingly interdependent, the need for a governance professional has never been urgent. It is time to build a governance professional that serves both meetings and cabinets, combining a deep knowledge of domain, ethical rigor and institutional independence.
Yesterday’s compliance officer is the government officer tomorrow, and perhaps, the guardian of the consciousness of the system. This is not simply a change in roles; It is the birth of a new professional.
The idea of a governance professional has arrived, in silence, convincingly and irreversible. As Victor Hugo said, “nothing is more powerful than an idea whose moment has come.”
Sahoo is the former secretary and Ananthasubramanian is former president of the Institute of Secretaries of the Company of India.
Posted on April 17, 2025