Written by SEBI Notifications on the Position of Compliance Officer for Listed Entities
The Securities and Exchange Board of India (SEBI) has, through recent regulatory updates, significantly enhanced the role and responsibilities of the Compliance Officer within listed entities in India.
This post provides an analysis of the SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2024, issued in December 2024, and the subsequent SEBI Circular dated April 1, 2025, which clarified certain aspects of these amendments. These regulatory actions highlights SEBI’s commitment to strengthening the corporate governance framework and ensuring robust compliance practices within listed entities.
The key changes mandate that the Compliance Officer must be a whole-time employee, hold a senior position not more than one level below the board of directors, and be designated as a Key Managerial Personnel (KMP). These requirements aim to empower the Compliance Officer, providing them with the necessary authority and access to effectively discharge their duties.
The April 2025 circular further clarifies the interpretation of the “level” of the Compliance Officer within the organizational structure, addressing ambiguities and ensuring consistent application of the regulations across different types of listed entities. These updates necessitate a re-evaluation of organizational structures and a greater emphasis on the strategic importance of the compliance function within listed entities.
II. SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2024 (December 2024): Enhancing the Role and Position of the Compliance Officer
The SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2024, were notified on December 12, 2024. This amendment, effective from the date of its publication in the Official Gazette on December 12, 2024 (with the exception of specific sub-regulations coming into force later) , signifies a determined effort by SEBI to reinforce the compliance framework within listed entities. The prompt implementation of these amendments suggests a recognition of the immediate need to elevate the stature and accountability of Compliance Officers.
A pivotal aspect of this amendment is the revision of Regulation 6(1) of the LODR Regulations, which pertains to the appointment of a qualified company secretary as the compliance officer.
A new proviso has been inserted, stipulating that the Compliance Officer must be an officer in the whole-time employment of the listed entity. This requirement effectively prohibits the appointment of part-time compliance officers or external consultants, ensuring that the individual responsible for overseeing compliance is fully integrated within the company’s operations and dedicated to this critical function. This full-time commitment is expected to foster a deeper understanding of the company’s specific compliance needs and challenges, leading to more effective implementation of compliance policies and procedures.
Furthermore, the amendment introduces a significant seniority requirement for the Compliance Officer, stating that they should not be more than one level below the board of directors. This elevation in the organizational hierarchy is intended to grant the Compliance Officer greater authority and access to the decision-making processes within the company. By positioning the Compliance Officer closer to the board, SEBI aims to ensure that compliance considerations are integrated at a higher level of management, thereby enhancing the overall culture of compliance within the listed entity. This also empowers the Compliance Officer to effectively communicate compliance-related concerns to the highest levels of management and facilitates quicker and more decisive action on compliance matters.
In a move that further ignites the importance of the Compliance Officer role, the amendment mandates their designation as a Key Managerial Personnel (KMP). The concept of KMP is well-established under the Companies Act, 2013, and includes senior management personnel who have significant influence over the functioning of the company. Designating the Compliance Officer as a KMP aligns their responsibilities and potential liabilities with those of other key decision-makers such as the Managing Director (MD), Chief Executive Officer (CEO), and Chief Financial Officer (CFO). This designation reinforces the accountability of the Compliance Officer to the stakeholders and regulatory authorities for ensuring adherence to applicable laws and regulations, thereby elevating the significance of the role within the corporate structure.
Recognizing the unique challenges faced by entities undergoing insolvency proceedings, the amendment introduces a new sub-regulation (1B) in Regulation 6. This provision specifically addresses vacancies in the office of the Compliance Officer for listed entities where a resolution plan has been approved under Section 31 of the Insolvency and Bankruptcy Code, 2016. It mandates that such vacancies must be filled within three months from the date of the resolution plan’s approval. Additionally, a proviso to this sub-regulation states that during any interim period where the Compliance Officer position is vacant, the listed entity must have at least one full-time KMP managing its day-to-day affairs. This demonstrates SEBI’s proactive approach to ensuring that a robust compliance framework is maintained even during periods of financial distress and corporate restructuring, minimizing the potential for regulatory lapses during such critical times.
Beyond the specific enhancements to the Compliance Officer’s role, the December 2024 amendment also included the omission of Regulation 7(3). This deletion removes the previous requirement for listed entities to submit a compliance certificate to the stock exchange, which was to be signed by both the Compliance Officer and the authorized representative of the share transfer agent. This change suggests a potential shift in regulatory focus towards placing greater reliance on the individual responsibility of the Compliance Officer and other internal mechanisms for ensuring compliance, rather than a joint external certification. It could also indicate SEBI’s move towards streamlining compliance procedures and reducing potential redundancies.
III. SEBI Circular on Clarification of Compliance Officer Position (April 2025): Defining the “Level”
Recognizing the diverse organizational structures prevalent among listed entities, the circular also provides specific guidance for companies that do not have an MD or a WTD. In such cases, SEBI clarified that the Compliance Officer cannot be positioned more than one level below the Chief Executive Officer (CEO), Manager, or any other individual responsible for heading the day-to-day affairs of the listed entity. This ensures that even in the absence of a traditional MD or WTD, the Compliance Officer still occupies a sufficiently senior position within the organizational hierarchy, maintaining the intended level of authority and access. This demonstrates SEBI's pragmatic approach in tailoring the regulatory requirements to accommodate different organizational models while upholding the core objective of ensuring a senior and empowered Compliance Officer.
Furthermore, SEBI emphasized that this interpretation of the term “level” is in alignment with regulation 2(1)(o) of the LODR Regulations, which defines “key managerial personnel” by referencing section 2(51) of the Companies Act, 2013. This alignment between SEBI’s listing regulations and the broader corporate law framework in India reinforces the consistency and coherence of the regulatory landscape. By linking the seniority requirement for the Compliance Officer to the definition of KMP under the Companies Act, SEBI ensures a unified approach to identifying and positioning key managerial personnel within listed entities.
IV. Impact and Implications for Listed Entities:
The December 2024 amendment and the subsequent April 2025 circular have profound implications for listed entities in India, primarily centered around the enhanced status and responsibility of the Compliance Officer. These regulatory changes collectively elevate the Compliance Officer’s role from a primarily administrative function to a more strategic and influential position within the organization. Listed entities are now expected to empower their Compliance Officers to play a more proactive role in ensuring regulatory adherence and fostering a strong culture of compliance. This shift reflects a growing global recognition of the critical importance of compliance in mitigating risks, maintaining investor confidence, and upholding the integrity of the capital markets.
To comply with these new regulations, listed entities may need to undertake a comprehensive review and potential adjustment of their existing organizational structures. Companies where the Compliance Officer currently reports to a level of management more than one step below the board (or the MD/WTD or CEO/Manager in their absence) will need to restructure their reporting lines and responsibilities to meet the new seniority requirements. This may involve creating new reporting structures or redefining the roles and responsibilities of other senior management personnel to ensure the Compliance Officer has a direct reporting line to the appropriate authority.
The designation of the Compliance Officer as a KMP carries significant implications in terms of increased accountability and potential liabilities under the Companies Act, 2013. Compliance Officers, now recognized as key decision-makers, will be subject to the same level of scrutiny and held to the same standards as other KMPs. This necessitates that individuals appointed to this role possess the requisite expertise, experience, and integrity to effectively discharge their responsibilities. Listed entities must ensure that their Compliance Officers are equipped with the necessary resources, authority, and support to fulfill their expanded mandate.
Collectively, these changes are expected to significantly strengthen the overall compliance function within listed entities. A more empowered and senior Compliance Officer is likely to lead to the development and implementation of more robust and effective compliance programs. This proactive approach to compliance can help reduce the risk of regulatory violations, penalties, and reputational damage, ultimately contributing to better corporate governance and enhanced investor trust.
For many listed entities, the existing Company Secretary, if possessing the requisite qualifications and experience, is likely to be designated as the Compliance Officer, thus fulfilling both roles. However, the enhanced responsibilities and elevated seniority associated with the Compliance Officer role may lead to an increased workload for Company Secretaries. Companies should therefore assess the existing capacity and provide adequate support and resources to their Company Secretaries to enable them to effectively manage their expanded scope of responsibilities. This may include providing additional staff, training, or technological tools to assist in managing the increased demands of the combined role.
V. Conclusion:
The SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2024, and the subsequent clarification circular issued in April 2025, represent a significant step towards strengthening the corporate governance framework for listed entities in India. By mandating that the Compliance Officer be a whole-time employee, hold a senior position not more than one level below the board, and be designated as a Key Managerial Personnel, SEBI has unequivocally emphasized the critical importance of the compliance function. The clarification provided in the April 2025 circular regarding the interpretation of the term “level” further ensures consistency and clarity in the implementation of these regulations across all listed entities. It is now incumbent upon listed entities to adapt to these regulatory updates by reviewing their organizational structures, empowering their Compliance Officers, and fostering a strong culture of compliance to ensure continued adherence to regulatory requirements and maintain the trust of their investors.
Source : SEBI Circulars
Clarification on the position of Compliance Officer in terms of regulation 6 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 – April 1, 2025
https://www.sebi.gov.in/legal/regulations/dec-2024/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-third-amendment-regulations-2024_89956.html – Dec 12, 2024