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The Securities and Exchange Board of India has revised its ‘fit and proper person’ framework, removing automatic disqualification linked to pending FIRs, complaints or charge sheets in economic offence cases. The updated norms expand disqualification triggers upon conviction and introduce procedural safeguards, including a mandatory hearing before adverse classification. The regulator has also reduced the cooling-off period for registration applications to six months and removed the default five-year ineligibility clause. Intermediaries must now disclose disqualifying events within 15 working days, with additional clarity provided on group entities and corrective actions for key personnel.
The Securities and Exchange Board of India has amended its ‘fit and proper person’ framework for market intermediaries, removing automatic disqualification arising solely from the filing of criminal complaints, FIRs or charge sheets in economic offence cases, according to a notification issued earlier this week. Advertisement
Under the revised norms, the presence of a pending complaint, an FIR filed by the regulator or a charge sheet related to economic offences will no longer, by itself, result in disqualification. The change introduces a shift from earlier provisions where such triggers could directly impact eligibility without a judicial conclusion.
However, the regulator has widened the scope of disqualification in cases of conviction. In addition to offences involving moral turpitude, any conviction related to economic offences or violations under securities laws will now lead to disqualification. The notification also clarifies that while the initiation of winding-up proceedings will not be treated as a disqualifying factor, the issuance of a formal winding-up order will continue to attract ineligibility.
Intermediaries are now required to inform the regulator within 15 working days of any disqualifying events. The revised framework also mandates that individuals must be given a reasonable opportunity to be heard before being classified as ‘not fit and proper’, introducing an explicit procedural safeguard.
In another change, the regulator has removed the default five-year ineligibility period for registration in cases where no specific duration had been prescribed earlier. The cooling-off period applicable to registration applications under ‘non-consideration’ following the issuance of a show cause notice has been reduced from one year to six months.
The amendments further clarify that a ‘not fit and proper’ declaration against an associate or group entity will not automatically extend to other applicants or intermediaries unless directly linked to the same event.
In cases where key individuals are declared ‘not fit and proper’, intermediaries will be required to take corrective action, including replacing such individuals within 30 working days or ensuring they relinquish voting rights and divest holdings within six months. Failure to comply may result in the intermediary itself being assessed under the revised criteria.
The changes follow the regulator’s approval of the proposal in the past month, aimed at improving procedural clarity while maintaining regulatory oversight.
Source - PTI
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