New Delhi: India’s capital market regulator, the Securities and Exchange Board of India (SEBI), has proposed wide-ranging changes to the ‘Fit and Proper Person’ framework governing market intermediaries, in a move aimed at strengthening regulatory clarity, transparency and procedural fairness.
The proposals, outlined in a consultation paper, seek amendments to Schedule II of the SEBI (Intermediaries) Regulations, 2008, which lay down eligibility standards for market participants. The revised framework will apply to stock brokers, mutual fund distributors, investment advisers, other intermediaries, as well as their key management personnel (KMPs) and persons exercising control.
SEBI said the objective is to reduce regulatory uncertainty while ensuring that decisions on eligibility are taken through a clearly defined, fair and consistent process.
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What the proposed framework changes
According to the regulator, several procedural safeguards currently followed in practice are not explicitly codified in the regulations. The proposed amendments aim to formally embed these safeguards into the rulebook, providing legal certainty to applicants and regulated entities.
A key proposal is to explicitly incorporate the right to a hearing before any individual or entity is declared unfit or improper. While such hearings are already granted under existing practice, SEBI has proposed to formally recognise this right in the regulations to eliminate ambiguity and ensure procedural fairness.
The consultation paper also seeks to clearly define the scope of disqualifications, specifying the circumstances under which a person may be deemed not ‘fit and proper’, and equally important, when such a conclusion should not automatically follow.
Key shift on liquidation-related disqualification
One of the most significant proposed changes relates to liquidation proceedings. SEBI has suggested removing the provision that treats the mere initiation of liquidation as a ground for disqualification.
Instead, the regulator has proposed that only a final liquidation order should be considered relevant while assessing whether a person or entity meets the ‘fit and proper’ criteria.
SEBI noted that treating the commencement of liquidation proceedings as an automatic disqualification could lead to unfair outcomes, particularly in cases where proceedings are eventually resolved in favour of the concerned entity or individual.
Mandatory disclosure within seven days
The consultation paper also proposes introducing a clear reporting timeline for disqualification-related events. Under the revised framework, any intermediary, KMP or controlling person would be required to inform SEBI within seven days of the occurrence of any event that may affect their ‘fit and proper’ status.
This requirement is aimed at ensuring timely regulatory oversight and avoiding disputes arising from delayed or incomplete disclosures.
The regulator has further clarified that no person can be declared unfit or improper without being granted a reasonable opportunity of hearing, reinforcing due process as a central pillar of the revised framework.
Relief on show-cause notice timelines
SEBI has also proposed easing timelines related to show-cause notices. Currently, applications may remain unconsidered for up to one year following the issuance of such notices. The consultation paper suggests reducing this period to six months, a move expected to cut down prolonged uncertainty for applicants and regulated entities.
In addition, the regulator has proposed greater clarity in provisions governing group entities and associate companies, to define how issues in one entity may impact the eligibility of related entities within the same group.
What it means for the market
Market experts say the proposals represent an attempt to strike a balance between regulatory rigour and procedural justice. While SEBI continues to emphasise market integrity and investor protection, the revised framework seeks to ensure that intermediaries are assessed through a predictable, transparent and fair process.
If implemented, the changes could make licensing, registration and compliance decisions more consistent, improving confidence among market participants and reducing the risk of arbitrary outcomes.
Next steps
SEBI has invited public comments on the proposals until February 25. The regulator will review stakeholder feedback before finalising and notifying the amendments.
Regulatory observers believe the initiative could mark an important step toward aligning India’s capital market oversight with global best practices, where strong supervision is combined with clearly articulated procedural safeguards and regulatory certainty.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
