The Securities and Exchange Board (Sebi) has proposed easing the ‘fit and proper person’ criteria for Market Intermediaries (MIs) introduced in 2021.
The regulator is considering bringing relaxation to norms such as the automatic disqualification of an MI in case of pending criminal complaint, first information report (FIR) by Sebi, or a pending charge sheet by an enforcement agency as these are only “preliminary steps to set the criminal law into motion.”
Initial stages of investigation
Such disqualifications at the initial stages of investigation will be against the criminal law principle that all persons are innocent until proven guilty, Sebi said in a consultation paper on Wednesday.
Such norms may be onerous and not appropriate as it could lead to unintended consequences for MIs, key managerial personnel, and controlling stakeholders. The regulator also said it will lay down guidelines on cases where pendency of criminal proceedings is “egregious enough” to incur disqualification.
Insolvency and Bankruptcy Code 2016
The current norms also take into account winding up proceedings under the Insolvency and Bankruptcy Code 2016 as a factor for disqualification. “…there is a possibility that the CIRP (corporate insolvency resolution process) can also result in a successful revival of the corporate debtor.” Sebi said that MIs should be disqualified only after a winding up has been passed and not at the initial stage of such proceedings.
Further, the regulator proposed giving a reasonable opportunity for MIs to be heard before their disqualification, the failure of which can lead to consequences such as replacement of the key managerial personnel and divestment of their holding.
It also said that any event that could lead to potential disqualification of MIs should be disclosed to the regulator. Securities and Exchange Board has invited public comments on its proposals latest by February 25.