SEBI Proposes Amendments To “Fit & Proper Person” Framework For Market Intermediaries

The Securities and Exchange Board of India (SEBI) is considering changes to the rules it uses to judge who can operate in the securities market. The market regulator is reviewing the existing ‘fit and proper person’ framework, which applies to brokers, investment advisers, portfolio managers, and other registered intermediaries.

On Wednesday, 4 February 2026, SEBI proposed amendments to Schedule II of the Intermediaries Regulations, 2008. This schedule defines the criteria for a “fit and proper person” applicable to market intermediaries, key management personnel (KMP), and persons in control. SEBI has issued a consultation paper seeking public feedback.

The market regulator said the current framework needs clarity. Some provisions, it noted, may lead to harsh outcomes or confusion. The proposed changes are meant to make the process fairer and more predictable for market participants.

What Changes Has SEBI Proposed?

SEBI has proposed several changes to bring more clarity to the “fit and proper person” framework. The aim is to bring fairness and certainty.

One key proposal relates to winding-up cases. At present, even the start of winding-up proceedings can lead to disqualification. SEBI wants to change this. It has been proposed that only a final winding-up order should be considered. Mere initiation of proceedings should not be enough.

The regulator has also proposed to include a right to a hearing in the rules. While such hearings are already given in practice, SEBI wants this to be stated clearly in the regulations. This is meant to remove any doubt around the procedure.

Another proposal places fresh responsibility on intermediaries and applicants. They would need to inform SEBI within seven days if any event occurs that could lead to disqualification. This would apply to key management personnel and persons in control as well.

The proposal stated, “The obligation to inform SEBI about the occurrence of any event in respect of KMPs or the Persons in Control shall also be with the applicant or intermediary as they are applying for or holding the certificate of registration with SEBI.”

SEBI has clarified that a person can be declared not fit and proper only after being given a reasonable chance to be heard. This condition would be expressly included in the rules.

The regulator has also proposed removing the default five-year ineligibility period that applies when no time period is mentioned in an order. In future, ineligibility would last only for the period clearly stated by SEBI.

According to the market regulator, these changes may reduce uncertainty and ensure that key disqualification decisions are based on final outcomes instead of preliminary developments.

What Happens Next?

The consultation process will determine whether the proposed safeguards and relaxations are incorporated into the final regulatory framework governing market intermediaries.

SEBI has invited public comments on the proposal until 25 February 2026. After reviewing feedback, it may finalise the changes.

Sources:

The Hindu

The Economic Times