SEBI Revises Intermediary Eligibility Norms, Drops Automatic Disqualification

The Securities and Exchange Board of India (SEBI) has revised the ‘fit and proper person’ criteria for market intermediaries, as per PTI reports.  

Under the updated framework, the filing of a criminal complaint, First Information Report (FIR), or charge sheet in economic offence cases will not automatically result in disqualification. Earlier, such filings could affect eligibility even when proceedings were ongoing. 

Disqualification Linked to Convictions 

The revised rules place reliance on confirmed legal outcomes. According to a notification issued on April 15, conviction for economic offences or violations under securities laws will now lead to disqualification, in addition to offences involving moral turpitude.  

This broadens the list of offences while tying action to court decisions rather than investigations. 

Reporting and Application Timelines Adjusted 

Intermediaries are required to inform SEBI within 15 working days of any disqualifying development. The period during which registration applications remain under ‘non-consideration’ following a show cause notice has been reduced from 1 year to 6 months.  

The regulator has also removed the earlier default ineligibility period of 5 years where no specific duration was mentioned. 

Clarification on Corporate Proceedings 

The amendments specify that the initiation of winding-up proceedings will no longer be treated as a disqualification trigger. However, a final winding-up order will continue to result in ineligibility.  

In addition, a ‘not fit and proper’ declaration against an associate or group entity will not automatically apply to another entity unless there is a direct connection to the same issue. 

Requirements for Key Management Changes 

Where individuals in key positions are declared ‘not fit and proper’, intermediaries must take corrective steps.  

This includes replacing such persons within 30 working days or ensuring they relinquish voting rights and divest their holdings within 6 months.  

If these steps are not taken, the intermediary itself may face action under the same criteria. 

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Conclusion 

The amendments, approved earlier in March, introduce changes to align regulatory action with final outcomes while setting defined timelines for disclosures and corrective measures. 

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