Sebi approves RPT disclosures proposed by Industry Standard Forum

The Securities and Exchange Board of India (Sebi) has approved new standards for disclosures related to related-party transactions (RPTs), aiming to ensure more transparency and protect investors. 

The announcement came from Sebi chairperson Madhabi Puri Buch at the launch of India’s first RPT analysis portal on Friday.

Buch expressed her appreciation for the industry’s efforts in establishing robust RPT disclosure standards, noting that the Industry Standards Forum (ISF) had approved the guidelines only moments before the event. “They have approved it just a few minutes ago, and it is an amazing amount of high-quality work that the industry itself has come up with,” Buch said.

The ISF is a Sebi-established group of representatives from different industries who come together to develop and set standards for implementing regulatory guidelines within their respective sectors. It aims to incorporate industry feedback when creating these standards.

She emphasized that the new standards would require companies to make disclosures in terms of what are the minimum disclosures the companies would have to make when they take an RPT for approval, both by shareholders as well as the audit committee (in certain cases). Additionally, the standards would also clarify what are the minimum disclosures required when you go to the shareholders for approval.

Improve quality of information

Buch explained that the new guidelines would provide significant improvements in the quality of information accessible to audit committees and public shareholders.

She also reflected on the strategic importance of RPTs for companies but warned of the risks they posed due to their potential for fraud.

Buch underscored that Sebi’s regulations are primarily disclosure-based, where companies are only required to reveal what they are doing in the market. “The single most important role of the regulator is to ensure that information and all relevant information is available to the investor so that they can make an informed decision,” she stated, adding that it was essential for market price discovery to reflect a company’s true character.

However, Buch acknowledged concerns about information overload and the balance between too much and too little disclosure. “Is there an information overload on the investor, and how much can Sebi absorb?” she asked.

Despite this challenge, she praised the launch of the RPT portal as a strategic initiative, highlighting how three competing market players—Institutional Investment Advisory Services (IiAS Advisory), InGovern and Stakeholders Empowerment Services (SES)—had come together for the public good.

Unveil conflict of interest

RPTs remain a critical area of concern, according to Buch, as they often involve potential conflicts of interest. “Whenever a business decision is made, the promoter has the same objective as the minority shareholder. There is no divergence. The only place where this divergence has the potential of diverging is in related-party transactions,” she explained. The new standards aim to address these concerns by enhancing transparency and preventing undue benefits to promoters at the expense of public shareholders.

At the event, Sebi executive director Pramod Rao also emphasized that the new standards would contribute to a more balanced approach to RPTs, thereby fostering investor trust and confidence in listed entities.

Meanwhile, Sebi whole-time member Ashwani Bhatia praised the launch of the portal, calling it a step forward for global regulators to follow. “Three leading proxy advisory firms have set aside competition to work together towards a common goal, enhancing transparency in corporate transactions,” Bhatia said.

He also acknowledged the positive role that RPTs, when conducted properly, can play in business growth by unlocking synergies, improving supply chains and strengthening market reach.

Bhatia emphasized, however, that when RPTs are not executed at arm’s length or lack transparency, they undermine market integrity and harm shareholders.

“The integrity of our markets is at stake when the price is not fair, when transparency is lacking, and when such transactions benefit a select few at the cost of public shareholders,” he warned. The new portal, he explained, would democratize access to crucial information, providing investors with a centralized repository of standardized RPT data. This would allow them to assess and compare transactions across companies and evaluate their fairness.