SEBI Proposes Revamp of ‘Fit and Proper’ Norms for Market Intermediaries

India’s securities market regulator has floated a set of proposals aimed at recalibrating how eligibility standards are applied to intermediaries, with the intention of balancing enforcement with procedural fairness. 

Shift Away from Automatic Disqualifications 

Under the proposed framework, mere initiation of criminal proceedings would no longer trigger automatic disqualification for market participants.  

The regulator noted that the filing of complaints, FIRs or charge sheets, particularly in economic offence cases, represents only the starting point of legal processes.  

Treating such early-stage actions as rule-based exclusions was seen as inconsistent with the principle of “innocent until proven guilty”.  

The changes are intended to ensure that intermediaries, senior executives and controlling shareholders are not subjected to adverse consequences before courts reach a final determination. 

Disclosure, Hearing Rights and Insolvency Cases 

The consultation paper also outlines a move towards greater transparency by requiring disclosure of events that could potentially result in disqualification.  

At the same time, a declaration of ineligibility would only follow after giving the concerned person a reasonable opportunity to be heard.  

In a separate proposal, the regulator said the mere initiation of winding-up proceedings under the Insolvency and Bankruptcy Code should not, by itself, lead to disqualification unless a winding-up order is actually passed.  

This approach is expected to offer relief in cases where resolution and revival remain possible. 

Changes to Registration Timelines 

In addition to eligibility norms, the regulator has suggested easing entry timelines for fresh registrations.  

The proposed changes include cutting the cooling-off period after a show-cause notice to 6 months from 1 year, and removing the default 5-year prohibition in situations where no specific time bar is prescribed.  

These adjustments are aimed at lowering uncertainty and making the regulatory framework more predictable for market participants. 

Read More: Following STT Hike, SEBI Chair Signals No Near-Term Plans for F&O Market Restrictions! 

Conclusion 

Through the proposed overhaul of ‘fit and proper’ criteria, SEBI is seeking to reduce compliance friction while maintaining integrity standards, signalling a shift towards outcome-based assessments rather than automatic exclusions. 

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