Summary of this article
Sebi has relaxed disqualification norms for market intermediaries
Sebi's rule change aims towards wider procedural fairness and clarity
The Securities and Exchange Board of India (Sebi) has amended the ‘fit and proper person’ framework for market intermediaries. The amendment aims to bring broader procedural fairness and clarity in the framework.
In a recent notification, Sebi revised the norms for disqualification of market intermediaries. Under the revised rules, a mere filing of criminal complaints, FIRs, or chargesheets in economic offence cases, will no longer lead to automatic disqualification of entities. However, Sebi explained that if the individuals are convicted of the offences, it will lead to disqualification.
Conviction in cases of any economic offence or violation under securities rules will also lead to disqualification of market intermediaries, widening the scope from just offences involving moral turpitude.
Sebi further clarified that the initiation of winding-up proceedings has also been removed as ground for automatic disqualification. In order to attract disqualification, an actual winding-up order has to be brought. Sebi has mandated intermediaries to inform Sebi of any disqualifying event about themselves within 15 working days.
The market regulator also introduced clearer provisions ensuring that individuals are given reasonable opportunities to be heard before being declared ‘not fit and proper’. Additionally, Sebi has also removed the default five-year ineligibility norm for registration in cases in which no specific duration is mentioned in its order.
Sebi has also reduced the cooling-off period to six months from one year. During the cooling off period, registration applications are not considered with the issuance of a show cause notice (SCN). The market regulator further clarified that in case an associate or group entity is declared ‘not fit and proper’, it will not automatically impact the eligibility of an applicant or an intermediary, provided they are not directly linked to the same event.
However, if key individuals in a case are declared ‘not fit and proper’, the intermediaries will need to take corrective action. Such actions include replacing the persons declared unfit within 30 working days and ensuring that they give up their voting rights and divest their holdings within six months. Failure to abide by such corrective steps may attract action against the intermediary and they may be deemed ‘not fit and proper’.
