Position of Compliance Officer in a Company - SEBI clarification.
- Artha Institute of Management
- Sep 27
- 4 min read
The expression “one level below the Board of Directors” continues to attract debate in the context of appointing a compliance officer.
Under Section 203 of the Companies Act, 2013, appointment of a Company Secretary as a Key Managerial Personnel (KMP) is mandatory. The intent of the law is to ensure that the compliance function maintains independence and is positioned close to the Board.
However, in practice, company secretaries are often required to report to functional heads such as the CFO or CEO, rather than directly to the Board. This raises an important compliance question:
Whether such a reporting structure satisfies the statutory requirement of being “one level below the Board”, or whether it results in a technical non-compliance.
Regulation 6(1) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI LODR”) requires every listed entity to appoint a company secretary as compliance officer. This officer plays a crucial role in corporate governance—ensuring regulatory compliance, coordinating with authorities, validating disclosures, and handling investor grievance mechanisms.
On April 1, 2025, SEBI issued a much-awaited clarification on the position of compliance officers under Regulation 6, following the 2024 Third Amendment (notified on December 12, 2024).
What Changed With the 2024 Amendment?
The amendment introduced three specific requirements for compliance officers:
They must be in whole-time employment of the listed entity.
They must be designated as Key Managerial Personnel (KMP).
They must be positioned “one level below the Board of Directors.”
While the first two requirements were already in line with the Companies Act, 2013 (Section 203), the phrase “one level below the Board” created confusion. Different companies have different hierarchies, and functional reporting does not always reflect structural seniority.
SEBI Clarification of April 2025
To resolve this ambiguity, SEBI clarified that “level” refers to a structural position in the organisation, not just reporting lines.
One level below the Board” means one level below the Managing Director (MD) or Whole-Time Directors (WTDs).
If these positions are absent, it means one level below the CEO, Manager, or equivalent executive handling day-to-day affairs.
This ensures that compliance officers are structurally empowered and not buried under multiple managerial layers.
The DCB Bank and Pakka Limited Cases
Shortly after the circular, SEBI issued informal guidance to two listed companies—DCB Bank and Pakka Limited(April 3, 2025)—to reinforce its interpretation.
DCB Bank: Their compliance officer was five levels below the Board but reported directly to the MD. SEBI held this non-compliant because structural seniority, not just reporting, is required.
Pakka Limited: The company asked if functional reporting to the Board/MD, while administratively reporting to the CFO, was sufficient. SEBI clarified that unless the officer is structurally positioned one level below the MD/CEO, it violates Regulation 6(1).
Why the Distinction Between “Level” and “Reporting” Matters
SEBI’s stance underlines a critical governance principle:
“Level” = formal position in hierarchy
“Reporting” = accountability framework
The two are not interchangeable. A compliance officer may report to the Board, but if their designation sits several layers down in the hierarchy, their authority and independence are compromised.
This interpretation mirrors other provisions in law:
Section 2(51), Companies Act, 2013: defines KMPs as not more than one level below the WTD.
Regulation 16(1)(d), SEBI LODR: defines “senior management” similarly.
Why SEBI Made This Change?
The move is line with the recommendations of SEBI’s Expert Committee (August 2023), which reviewed the SEBI LODR and SEBI ICDR Regulations.
The committee observed that many compliance officers:
Were two or more levels below the Board, often reporting to the CFO or legal head.
Lacked sufficient independence to escalate issues directly to the Board.
Risked conflicts of interest due to dual reporting structures.
To address these risks, the committee recommended placing the compliance officer directly below the MD/CEO/WTD, ensuring enough authority to discharge statutory duties effectively.
Implications for Listed Companies
With SEBI’s clarification:
Listed companies must review both designations and organisational levels of compliance officers.
Functional reporting alone will not suffice—structural positioning is key.
Misalignment could expose companies to regulatory non-compliance and weaken governance standards.
In the long run, this move strengthens the compliance function by ensuring the company secretary is empowered, independent, and capable of providing objective oversight.
Conclusion
SEBI’s clarification under Regulation 6(1) is more than a technical adjustment—it is a corporate governance safeguard. By mandating that compliance officers be structurally one level below the Board, SEBI ensures they have the authority to act independently, escalate issues without interference, and uphold regulatory standards.
For listed entities, the message is clear: revisit your internal hierarchies now, and make sure your compliance officer’s position truly reflects the importance of their role.
References
[2] SEBI Circular No. SEBI/HO/CFD/PoD2/CIR/P/2025/47 dated April 1, 2025.
[3] SEBI Circular No. SEBI/HO/CFD/PoD2/CIR/P/2025/47 dated April 1, 2025.
[4] SEBI Informal Guidance Letters to DCB Bank Limited and Pakka Limited, dated April 3, 2025. [8] SEBI Expert Committee Report on Recommendations For Facilitating Ease Of Doing Business And Harmonization Of The Provisions Of ICDR And LODR Regulations,
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