The Securities and Exchange Board of India (SEBI) announced its intention to overhaul the ‘fit and proper’ framework for market intermediaries. SEBI highlighted concerns that existing regulations might be overly strict, potentially penalizing individuals and firms prematurely. Market participants have raised issues regarding the burdensome compliance requirements and the threat of reputational harm from early disqualifications.
The current framework allows an applicant or intermediary to fail the ‘fit and proper’ test based on facing a pending criminal complaint filed by SEBI or a charge sheet by an enforcement agency for an economic offense. SEBI acknowledged that such automatic disqualifications at an initial stage could contradict the presumption of innocence until proven guilty.
SEBI proposed eliminating automatic disqualifications associated with pending criminal complaints and charge sheets. Instead, the regulator aims to emphasize principle-based criteria like integrity, reputation, and overall conduct. While SEBI plans to widen disqualification criteria to cover individuals convicted of economic offenses or stock market violations, it intends to maintain the authority to act in severe cases, possibly with clear guidelines on when pending proceedings warrant action.
