New Delhi: A parliamentary panel has recommended increasing the cooling-off period for SEBI Chairperson and Whole-time Members from one year to two years before they can take up new employment, to avoid conflicts of interest.

It has also made a strong case for a regulatory framework for Virtual Digital Assets (VDAs) as it is becoming increasingly popular among retail investors.

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The report of the Parliamentary Standing Committee on Finance, which scrutinised The Securities Markets Code 2025, was tabled in Parliament on Thursday.

The Securities Markets Code, 2025, introduced in Lok Sabha in December 2025 was referred to the committee for examination and report thereon.

The proposed legislation aims to combine the SEBI Act, 1992, the Securities Contracts (Regulation) Act, 1956, and the Depositories Act, 1996 into a single code.

The report suggested increasing the cooling-off period for Sebi Chairperson and Whole-time Members from one year to two years before they can take up new employment with a securities markets service provider, market participant or any other person associated with the securities markets to avoid conflicts of interest.

It also recommended institutionalising the appointment of Sebi board members through a transparent, merit-based mechanism, such as the Financial Sector Regulatory Appointments Search Committee (FSRASC).

The panel, headed by MP Bhartruhari Mahtab, has also proposed extending legal protection for actions taken in "good faith" to officials of Market Infrastructure Institutions (MIIs) and the Securities Appellate Tribunal (SAT), in addition to Sebi officials.

Another major recommendation relates to virtual digital assets (VDA). Noting a regulatory vacuum in the VDA space, the panel urged the government to comprehensively examine the need for a regulatory framework for crypto-assets to better protect retail investors.

Pending the establishment of a comprehensive legislative framework, the government may consider introducing an interim regulatory mechanism through recognised Self-Regulatory Organisations (SROs) operating under the oversight of the designated regulator.

The parliamentary panel highlighted that excluding VDAs from the Securities Markets Code creates a regulatory grey area.

"In view of the rapid growth of the VDA ecosystem and increasing retail participation, the committee are of the view that this exclusion creates a regulatory grey area, resulting in regulatory uncertainty, exposing investors to heightened risks of fraud, market manipulation, misrepresentation and inadequate grievance redressal, while also creating opportunities for regulatory arbitrage. Such uncertainty may adversely affect investor confidence and undermine the integrity, transparency and orderly development of the securities market," the panel suggested.

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On enforcement, the committee said the statutory timeline for completing complex market investigations should be increased to one year from the proposed 180 days.

To strengthen investor protection, the committee proposed making it mandatory for Sebi to frame an Investor Charter defining investor rights and grievance redressal timelines. It also recommended reducing the time for the initial grievance resolution process to 90 days from the proposed 180 days.

The panel said key safeguards for retail investors during company delisting should be incorporated directly into the proposed Code instead of being left to subordinate regulations.

It also recommended clearly distinguishing between civil defaults and criminal "market abuse" so that criminal liability is reserved for serious and systemic misconduct. In addition, it suggested removing non-compliance with a regulatory order under Clause 94 from the list of predicate offences under the Prevention of Money Laundering Act (PMLA), saying such a consequence would be disproportionate.

The committee further recommended that monetary penalties be graded according to the severity of violations to ensure proportionality.

The report also cautioned against "excessive delegation" of substantive policy matters to subordinate legislation, saying issues such as criminal liability and essential rights should be specified in the primary law itself.

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