SEBI Overhauls Employee Conduct Framework: Employees' Service (Amendment) Regulations, 2026

 Notification No. SEBI/LAD-NRO/GN/2026/311 | Dated: July 7, 2026

Introduction

The Securities and Exchange Board of India has notified the SEBI (Employees' Service) (Amendment) Regulations, 2026, introducing a comprehensive overhaul of the conflict-of-interest, investment restriction, and disclosure framework applicable to its own employees. Issued in exercise of powers under Section 30 of the SEBI Act, 1992, these amendments to the SEBI (Employees' Service) Regulations, 2001 came into force upon publication in the Official Gazette and represent the most significant revision to the regime since the last amendment on September 8, 2025.

The amendments respond to the practical need for a more nuanced, workable framework governing employee investments, family member disclosures, and recusal from conflicted matters — an area that had previously created ambiguity in application.

Revised Definitions (Regulation 3(1))

The amendment substitutes and expands several foundational definitions:

Term	Key Change
Dependent	Split into "Dependent children" and "Substantially dependent" persons; excludes those added to the Group Mediclaim Policy as non-dependents with separately borne premiums
Family members	Now includes spouse, dependent children (including step/adopted), legal wards substantially dependent on the employee, and blood/marriage relatives who are substantially dependent
Financial investment	New — investment or deposit in any financial assets
Non-permitted investment	New — equity, equity-convertible instruments, and equity/commodity derivatives, excluding professionally managed pooled vehicles and InVIT/REIT units
Permitted investment	New — any financial investment that is not a non-permitted investment
Professional interest	New — interest from employment/advisory engagement with a non-government entity in the preceding three years
Relational interest	New — interest arising from association as a family member or relative
Relative	New — as defined under Section 2(77) of the Companies Act, 2013
OEC	New — Office of Ethics and Compliance within SEBI

Restrictions on Investments (Regulation 64)

Regulation 64 has been substituted in its entirety:

• Employees and their family members are barred from making fresh non-permitted investments during the employee's period of service.
• Investment in products of any single SEBI-regulated entity managing a pooled investment vehicle is capped at 25% of the employee's total acquisition cost of all financial investments held as on the last day of the previous financial year (or date of joining, whichever is later).

Relaxations for Family Investments (New Regulation 64A)

To address practical hardship, the amendment carves out specific relaxations:

• Spousal acquisition (and disposal) of equity under an Employee Stock Option Plan forming part of the spouse's own compensation package is exempt. Technical violations arising from such actions will not be treated as employee misconduct affecting career progression, though monetary penalties may still be imposed in appropriate cases.
• Family members using discretionary portfolio management services (where the fund manager acts independently) are exempt from the restriction.
• Acquisition or disposal of unlisted securities as part of a family member's private business or investment activity is exempt, and this exemption continues even after such securities are subsequently listed.

Transitional Options for Existing Investments (New Regulation 64B)

Employees holding non-permitted investments at the time of joining may elect one of the following:

1. Liquidate the investment;
2. Freeze it until completion of service;
3. Disclose a trading plan to the OEC for sale during service, in accordance with Regulation 5 of the SEBI (Prohibition of Insider Trading) Regulations, 2015; or
4. Sell without a trading plan, subject to prior OEC approval.

Where the investment relates to equity (or convertible instruments) of a commercial venture, including unlisted companies, only options (1) and (2) are available. Voting rights on unliquidated non-permitted equity remain suspended throughout the service period, though corporate action entitlements and rights issue subscriptions are not prohibited. Family members may continue to hold or dispose of pre-existing non-permitted investments without restriction. Serving employees at the time this amendment takes effect must exercise their chosen option within a timeline to be separately specified.

Disclosure of Interests (Regulation 66 — Substituted)

The revised Regulation 66 mandates disclosure of:

• Family members and relatives;
• Professional interests over the preceding three years;
• Immovable property held by the employee or family, where funded by or connected to the employee;
• Financial investments and liabilities of the employee or family, similarly connected;
• Non-permitted investments held by family members, including those not funded by the employee; and
• Rental contracts on immovable property.

Disclosures are required at joining and exit, with annual filings as on the last day of the preceding financial year. Any change in family members, relatives, rental arrangements, or immovable property transactions must be disclosed within one month of the month-end in which the change occurs. Financial asset transactions exceeding twice the employee's monthly basic pay must similarly be disclosed within one month of month-end. Notably, immovable property disclosures of employees in Grade F and Executive Directors will be made public by the OEC.

Recusal Framework (New Regulation 66A)

A structured recusal mechanism has been introduced, requiring an employee to withdraw entirely — including from discussion, decision-making, and access to related information — from any matter falling within a "conflicted relationship." This includes matters involving:

• Family members or relatives employed in key managerial or senior management positions with the concerned entity;
• Professional or relational interests likely to give rise to bias or perceived bias;
• Close friends or associates of the preceding three years, similarly likely to give rise to bias;
• Material interest, defined as non-permitted investment (by the employee and family combined) exceeding ₹20 lakh in acquisition cost, or exceeding 5% of total financial investments held; and
• Investments exceeding the 25% pooled-vehicle threshold under Regulation 64(2), until the holding falls below that threshold.

Matters involving a class of entities or generic rule-making are expressly excluded from the scope of conflicted relationships. Doubtful cases may be referred to the OEC. A digital system is to be established to record disclosures and process recusals.

Post-Employment Restrictions (Regulation 55(6))

A new cooling-off provision bars employees who leave service — whether by retirement, resignation, or otherwise — from appearing before or against the Board, on behalf of any other person, in any matter, quasi-judicial proceeding, adjudication, settlement, or approval matter, for a period of two years from the date of relief from service.

Gift Regulations (Regulation 62)

• Trivial gifts now expressly include mementos, souvenirs, and bouquets, in addition to existing categories.
• The occasion-based reference to Diwali and New Year has been removed, broadening applicability.
• The monetary threshold for permissible gifts has been raised from ₹10,000 to ₹50,000, now explicitly applied per donor rather than in aggregate.

Conclusion

These amendments reflect SEBI's effort to bring greater precision and workability to its internal governance regime, particularly around family member investments — an area that earlier lacked adequate carve-outs for legitimate financial planning. At the same time, the regulator has strengthened accountability through mandatory recusal protocols, expanded disclosure obligations, and a post-exit cooling-off period, aligning employee conduct standards with the fiduciary expectations SEBI places on the entities it regulates.

Reference: Securities and Exchange Board of India (Employees' Service) (Amendment) Regulations, 2026, Notification No. SEBI/LAD-NRO/GN/2026/311, dated July 7, 2026.