New Delhi, Feb 4 (IANS) The Securities and Exchange Board of India (SEBI) on Wednesday said that it is planning to revamp its ‘fit and proper’ framework for market intermediaries, saying some of the existing rules may be too rigid and could penalise individuals and firms before any wrongdoing is proven.
In a consultation paper, the markets regulator said that experience from enforcing these rules over the past five years, along with global best practices, has shown the need to review key provisions under its Intermediaries Regulations.
The move comes after market participants raised concerns about heavy compliance requirements and the risk of reputational damage due to early-stage disqualifications.
Under the current framework, an applicant or intermediary can fail the ‘fit and proper’ test if it is facing a pending criminal complaint filed by SEBI or a charge sheet by an enforcement agency for an economic offence.
SEBI noted that such automatic disqualifications at a preliminary stage may go against the principle that a person is presumed innocent until proven guilty.
The regulator pointed out that its other regulations, such as those governing stock exchanges and depositories, do not disqualify entities merely because a complaint or charge sheet has been filed.
It also said international standards, including those set by the International Organisation of Securities Commissions, focus on convictions rather than pending cases.
Similarly, domestic regulators like the Reserve Bank of India rely on convictions under rule-based tests and treat pending cases under broader, principle-based assessments.
SEBI has therefore proposed removing automatic disqualifications linked to pending criminal complaints and charge sheets.
Instead, it plans to rely more on principle-based criteria such as integrity, reputation and overall conduct.
However, the regulator said it would retain the power to act in serious or extreme cases, possibly through clear guidelines on when pending proceedings are severe enough to warrant action.
At the same time, SEBI has proposed widening its disqualification criteria to include anyone convicted of economic offences or stock market violations.
–IANS
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