EY, PwC ‘Chinese Walls’ under spotlight amid insider trading allegations

Regulatory Scrutiny Intensifies on Big Firms

India's markets regulator, the Securities and Exchange Board of India, has turned its focus on two global giants in professional services: EY and PwC.

The probe centers on alleged insider trading linked to a 2022 share sale by Yes Bank, where sensitive information may have been misused for personal gain.

Sebi has issued show-cause notices to top executives, including EY India chairman and CEO Rajiv Memani, chief operating officer Hiresh Wadhwani, and PwC India chief industries leader Arnab Basu, along with two former PwC senior partners.

These notices demand explanations on why penalties should not be imposed, pointing to potential failures in internal compliance processes.

The case also involves private equity players like Carlyle Group and Advent International, suggesting a web of connections in the deal ecosystem.

What Are 'Chinese Walls' and Why Do They Matter?

'Chinese walls' refer to strict internal barriers that big firms like EY and PwC put up to stop information from leaking between different teams.

These firms handle everything from audits to mergers, IPOs, and private equity deals, so they deal with heaps of confidential data that could sway stock prices.

The idea is to keep advisory teams separate from those doing audits or other work, ensuring no one trades on inside tips.

But the allegations claim these walls were breached, with employees possibly sharing price-sensitive details about the Yes Bank transaction.

Methods allegedly used include tipping off fund managers through informal chats, routing trades via family or friends, or even settling with gifts and trips abroad.

This spotlight on 'Chinese walls' comes as India's deal market hits records, with thousands of transactions worth billions, making compliance even more critical.

Challenges in Proving Insider Trading

Proving insider trading in India is notoriously tough, experts point out.

Sebi faces hurdles in establishing who qualifies as an 'insider' and linking them directly to illegal trades.

While the firms insist their controls are robust—prohibiting partners from even knowing about certain deals—the probe suggests some executives found ways around them.

"These allegations represent serious breaches if proven, as they undermine trust in the entire professional services sector that supports India's growth story," said Shriram Subramanian, founder of corporate governance firm InGovern Research Services.

Both EY and PwC have stayed silent on the ongoing investigations, neither confirming nor denying details.

Insiders predict the firms might settle with regulators to avoid prolonged battles, but the case could set precedents for how 'Chinese walls' are enforced in a fast-growing market.

It highlights risks in an industry spanning due diligence, valuations, and deal execution, where information flows freely if not checked.

The controversy underscores vulnerabilities in India's red-hot deal landscape, where massive transaction volumes amplify the stakes for information security. EY and PwC's 'Chinese walls' are now under intense review, with Sebi pushing for stronger safeguards. Key executives face scrutiny over a Yes Bank deal, raising broader questions about compliance in professional services amid booming M&As and IPOs. This probe could reshape how firms manage sensitive data.