SEBI mulls over overhaul of 'fit and proper person' framework governing market intermediaries

SEBI proposes significant reforms to the 'fit and proper person' framework for market intermediaries, enhancing clarity and fairness.

Markets regulator Securities and Exchange Board of India (SEBI) on Wednesday (February 4, 2026) proposed a comprehensive overhaul of the 'fit and proper person' framework governing market intermediaries, aiming to bring greater procedural clarity and fairness to the regulatory process.

In its consultation paper, SEBI has suggested amendments to Schedule II of the Intermediaries Regulations, 2008, which deal with the 'Fit and Proper Person' criteria applicable to intermediaries, their key management personnel (KMPs), and persons in control.

Under this, the regulator has proposed to clearly codify the right to a hearing, refine the scope of disqualifying events, and reduce regulatory uncertainty for applicants and intermediaries.

The regulator has recommended to abolish the reference to initiation of winding-up proceedings as a disqualification in a bid to ensure that only a final winding-up order, and not mere initiation of proceedings, is considered while assessing whether a person is fit and proper.

Also, SEBI is looking to explicitly include the right to a hearing in the regulations. Although the practice of giving a reasonable opportunity of being heard already exists, it has been proposed to be clearly stated in the rules to remove any procedural ambiguity.

Accordingly, a new clause has been proposed, which requires intermediaries or applicants to inform SEBI within seven days if any disqualifying event occurs, and clarify that a person can be declared 'not fit and proper' only after being given a reasonable opportunity of being heard.