Balancing Regulatory Rigour: Amendments to the ‘Fit and Proper Person’ Criteria under the SEBI (Intermediaries) Regulations, 2008

The Securities and Exchange Board of India (SEBI) issued a consultation paper dated February 4, 2026 (Consultation Paper, which can be viewed by clicking on this link) seeking public comments on proposed amendments inter alia to the ‘fit and proper person’ criteria (FPP Criteria) under Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (Intermediaries Regulations).

The FPP Criteria serve as a threshold eligibility requirement for intermediaries, applicable to the applicant or intermediary, its key management persons (KMPs), and the promoters or persons exercising control (Persons in Control). The criteria are divided into: (a) ‘principle-based criteria’ under Clause 3(a), relating to integrity, honesty and ethical behaviour etc.; and (b) ‘rule-based criteria’ under Clause 3(b), providing specific disqualifications. The Consultation Paper noted the need to amend the FPP Criteria, observing that certain ‘rule-based criteria’ under Clause 3(b) were perceived as onerous, particularly as disqualifications triggered at a preliminary stage (such as mere pendency of criminal complaints or charge sheets) could lead to unintended consequences where such proceedings ultimately result in acquittal or discharge.

Subsequently, at its 213^th board meeting held on March 23, 2026 (Board Meeting, press release for which can be viewed by clicking on this link), SEBI approved the proposed amendments to the Intermediaries Regulations, largely in line with the Consultation Paper. The amendments, once notified, would come into force on the date of their publication in the Official Gazette.

The key amendments approved at the Board Meeting are as follows:

1. Removal of Automatic Disqualifications for Pending Criminal Complaints and Charge Sheets

SEBI has approved to amend the rule-based criteria under Clauses 3(b)(i) and 3(b)(ii), such that the mere pendency of a criminal complaint, an FIR filed by SEBI, or the filing of a charge sheet in matters concerning economic offences shall not, by itself, constitute a ground for automatic disqualification. However, SEBI’s ability to consider such proceedings on a case-by-case basis under the principle-based criteria of Clause 3(a) remains unaffected.

2. Expansion of Conviction-Based Disqualification 

SEBI has approved that the existing disqualification under Clause 3(b)(v), which was limited to conviction for an offence involving moral turpitude, shall now be expanded to also include conviction by a court for any economic offence or any offence under securities laws.

3. Omission of Initiation of Winding Up Proceedings as a Ground for Disqualification 

SEBI has approved that the existing disqualification under Clause 3(b)(vi) shall be narrowed such that only the passing of an order of winding up, and not the mere initiation of winding up proceedings, shall attract disqualification. This recognizes the Consultation Paper’s observation that the insolvency resolution process can also result in successful revival.

4. Mandatory Disclosure Obligation and Opportunity of Being Heard

SEBI has approved the insertion of a new Clause 3A, requiring the applicant or intermediary to inform SEBI within 15 working days of the occurrence of any event envisaged under Clause 3(b) involving itself, its KMPs, or Persons in Control. Further, a new Clause 3B would also be inserted to expressly provide that a person shall be declared as not ‘fit and proper’ by SEBI only after giving such person a reasonable opportunity of being heard.

5. Removal of Default Five-Year Prohibition Period

SEBI has approved to remove the default prohibition of 5 (five) years from applying for fresh registration which was applicable where the relevant order declaring a person as not ‘fit and proper’ did not specify a time period. However, the prohibition on fresh registration during the period specifically provided in the order, would continue to apply.

6. Refinement of Show Cause Notice Provisions

SEBI has approved to amend the scope of proceedings triggering a restriction on consideration of registration applications to limit it only to proceedings under Section 11B(1) and Section 11(4) of the SEBI Act, 1992. Further, the period of non-consideration of registration upon issuance of a show cause notice (SCN) shall be reduced from 1 (one) year to 6 (six) months. Notably, SEBI also stated that with respect to pending cases, administrative steps may be taken, wherever required, to withdraw such SCNs or cases if such matters would not warrant issuance of SCNs under the amended provisions.

Overall, these amendments reflect SEBI’s effort to appropriately balance the regulatory objective of ensuring that only persons with integrity and good character operate in the securities market, with the need to promote ease of doing business and avoid disproportionate consequences at preliminary stages of proceedings.