Sebi Amends 'Fit and Proper' Rule for Market Intermediaries

Sebi Amends 'Fit and Proper Person' Framework for Market Intermediaries

Markets regulator Sebi has made significant changes to the 'fit and proper person' framework for market intermediaries, aimed at bringing greater procedural clarity and fairness to the regulatory process. The amendments, announced through a notification dated April 15, remove the automatic disqualification triggered by mere filing of criminal complaints, FIRs, or charge sheets in economic offence cases.

Under the revised norms, the existence of a pending criminal complaint, FIR filed by Sebi, or a charge sheet relating to economic offences will no longer, by itself, lead to automatic disqualification. However, Sebi has expanded the disqualification criteria upon conviction. In addition to offences involving moral turpitude, conviction for any economic offence or violation under securities laws will also attract disqualification.

Sebi has also introduced several other key changes to the framework. The regulator has removed the default five-year ineligibility period for registration in cases where no specific duration was mentioned in its order. Additionally, the cooling-off period, during which registration applications are in 'non-consideration' situation upon the issuance of an show cause notice (SCN), has been reduced from one year to six months.

Intermediaries have been mandated to inform Sebi within 15 working days of any disqualifying events involving themselves. The regulator has also introduced an explicit provision ensuring that a person is given a reasonable opportunity of being heard before being declared 'not fit and proper'.

In another significant change, Sebi has made it clear that a 'not fit and proper' declaration against an associate or group entity will not automatically impact the eligibility of an applicant or intermediary, unless they are directly linked to the same event. However, in cases where key individuals are declared 'not fit and proper', intermediaries will be required to take corrective action. This includes replacing such persons within 30 working days or ensuring that they relinquish voting rights and divest their holdings within six months, failing which the 'fit and proper' criteria may be invoked against the intermediary.

The changes are a result of Sebi's efforts to refine its regulatory framework and ensure greater transparency and accountability in the market. The amendments are aimed at providing a more fair and equitable treatment to market intermediaries, while also maintaining the integrity of the regulatory process.