Sebi tweaks 'fit and proper person' rule

Markets regulator Sebi has tweaked the criteria for determining "fit and proper person", according to a notification issued on Wednesday.

Under the new framework, these criteria will be principle-based and/or rule-based.

The principle-based criteria include integrity, honesty, ethical behaviour, reputation, fairness, and character, according to the notification.

Further, the rule-based norms will determine the fit and proper status of the person based on the disqualifications as has been prescribed.

Some of such disqualifications include an order of conviction passed against such person by a court for any offence, involving moral turpitude or such person has been declared insolvent and not discharged. The disqualifications also include if such person has been categorised as a wilful defaulter or has been declared a fugitive economic offender or against whom an order has been passed by Sebi or any other financial sector regulator.

To give effect to this, the Securities and Exchange Board of India (Sebi) notified norms governing intermediaries, wherein the intermediary ensure persons comply with 'fit and proper person' criteria.

The applicant or intermediary needs to have competence and capability in terms of infrastructure, manpower requirements and financial soundness, including meeting the net worth requirement.

The fit and proper person criteria shall apply to various persons -- the applicant or the intermediary; the principal officer, the directors or managing partners, the compliance officer and the key management persons by whatever name called; and the promoters or persons holding controlling interest or persons exercising control over the applicant or intermediary, directly or indirectly.

In the case of an unlisted applicant or intermediary, any person holding 20 per cent or more voting rights, irrespective of whether they hold controlling interest or exercise control, will be required to fulfil the 'fit and proper person' criteria.

Where any person has been declared as not 'fit and proper person' by Sebi, the regulator said such a person will not be eligible to apply for any registration during the period provided in the said order or for five years, if no such period is specified in the order.

At the time of filing of an application for registration as an intermediary, if any notice to show cause has been issued for proceedings then such an application will not be considered for grant of registration for one year from the date of issuance of such notice or until the conclusion of the proceedings, whichever is earlier, Sebi noted.

Any disqualification of an associate or group entity of the applicant or intermediary will not have any bearing on the 'fit and proper person' criteria of the applicant or intermediary.

If any person fails to satisfy the 'fit and proper person' criteria, the intermediary will replace such person within 30 days from the date of such disqualification. Also, the intermediary will ensure that such person does not exercise any voting rights and that such person divests their holding within six months from the date of such disqualification.

In case the intermediary failed in complying with these directions, the fit and proper person criteria may be invoked against the intermediary.

The new framework comes after the board of Sebi approved an amendment in this regard in late September.

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