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SEBI has amended the ‘fit and proper person’ criteria under the Intermediaries Regulations to move away from automatic, rule-based disqualifications towards a more principles-based framework.
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Following ‘innocent until proven guilty approach’, pending criminal proceedings will no longer result in automatic disqualification, with greater emphasis now placed on final outcomes such as convictions.
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Several provisions have been relaxed, including removal of the default five-year prohibition, narrowing of restrictions linked to show cause notices, and replacing mandatory divestment with voting rights restrictions for persons in control.
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The amendments also reflect principles of natural justice by expressly providing an opportunity of being heard before a person is declared not ‘fit and proper’, along with corresponding disclosure obligations.
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Considering that the International Financial Services Centres Authority (“IFSCA”) framework in GIFT City is broadly aligned with evolving global regulatory standards, and in light of SEBI’s shift towards a principles-based, “innocent until proven guilty” approach, similar recalibrations to the ‘fit and proper person’ criteria may be anticipated within the IFSCA regime in due course.
INTRODUCTION
On April 15, 2026, the Securities and Exchange Board of India (“SEBI”) notified key amendments to the ‘fit and proper person’ criteria under the SEBI (Intermediaries) Regulations, 2008 (“Intermediaries Regulations”) and these amendments (“2026 Amendment Regulations”) have come into force with immediate effect1.
These changes were approved by SEBI at its 213th Board meeting held on March 23, 20262, and follow the consultation paper issued on February 4, 2026 (“Consultation Paper”).3
The 2026 Amendment Regulations aim to strike a balance between: (i) maintaining a principles-based regulatory framework that ensures only persons demonstrating integrity, honesty, ethical conduct, fairness, and sound reputation participate in the securities market; and (ii) promoting ease of doing business for market participants.
In this hotline, we provide a brief overview of the changes introduced through the 2026 Amendment Regulations and analyse their potential impact on capital market intermediaries under the Intermediaries Regulations, with a specific focus on Alternative Investment Funds (“AIFs”) and Foreign Portfolio Investors (“FPIs”).
BACKGROUND
Under the Intermediaries Regulations, an ‘intermediary’ broadly refers to persons specified under Sections 11 and 12 of the SEBI Act and includes entities such as asset management companies, clearing and trading members, FPIs and AIFs, as may be specified by SEBI from time to time.4 A list of recognised intermediaries may be accessed here.
For Market Infrastructure Institutions, the ‘fit and proper person’ criteria are prescribed under the SEBI (Stock Exchanges and Clearing Corporations) Regulations, 2018 (“SECC Regs”) and the SEBI (Depositories and Participants) Regulations, 2018 (“DP Regs”).
For other intermediaries, the ‘fit and proper criteria’ is specified in schedule II of the Intermediaries Regulations. SEBI had last revised Schedule II through the Intermediaries (Third Amendment) Regulations, 2021 (effective November 17, 2021) to align the framework with global standards and provide clarity on its scope. The criteria were divided into: (i) principle-based criteria (such as integrity, honesty, ethical conduct, fairness and reputation) Clause 3(a) of Schedule II, and (ii) rule-based criteria set out under Clause 3(b) of Schedule II.
For intermediaries, meeting the ‘fit and proper person’ criteria is a pre-condition for registration and is assessed in accordance with Schedule II of the Intermediaries Regulations. In the case of FPIs, Regulation 22(1)(h) of the SEBI (FPI) Regulations, 2019 requires them to satisfy the ‘fit and proper person’ criteria specified in Schedule II of the Intermediaries Regulations and declare the same as part of their registration application to SEBI. Similarly, under Regulation 4(f) of the SEBI (Alternative Investment Funds) Regulations, 2012, the applicant, sponsor and manager of an AIF are required to meet this criterion and make a corresponding declaration in the registration application to SEBI.
Based on SEBI’s enforcement experience, international practices, based on the principles laid down by the International Organization of Securities Commissions (“IOSCO”) and stakeholders feedback, concerns were identified, particularly around the rigidity of the rule-based criteria and the irreversible impact of divestment requirements under the second proviso to clause 6 (see Point 7 below), even where a person is later acquitted or not found guilty.
In light of this, SEBI reviewed the framework and issued a Consultation Paper seeking public comments, which has now led to the present amendments.
ANALYSIS OF 2026 AMENDMENT REGULATIONS
The amendments reflect a shift in SEBI’s approach to from a rigid, rule-driven framework to a more balanced and principle-based assessment of the ‘fit and proper’ criteria. While the core objective of safeguarding market integrity remains unchanged, the revised framework seeks to reduce unintended consequences and improve ease of doing business.
a) Removal of automatic disqualification for pending criminal proceedings
Under Clause 3(b)(i) and 3(b)(ii) of Schedule II of the earlier framework, a person would be disqualified from being considered ‘fit and proper’ if: (i) a criminal complaint/FIR had been filed by SEBI and was pending; or (ii) a charge sheet had been filed by an enforcement agency in relation to economic offences and was pending. As a result, even the initiation of proceedings, at a preliminary stage, could trigger disqualification.
Pursuant to the Amendment Regulations, Clauses 3(b)(i) and 3(b)(ii) have been omitted. This removes the automatic disqualification linked to pending proceedings and aligns the framework with the principle of ‘innocent until proven guilty’. This approach is also consistent with international practice. In jurisdictions such as those guided by IOSCO principles, as well as under other SEBI regulations (e.g., SECC Regs and DP Regs) and RBI frameworks, disqualification is typically linked to conviction rather than mere pendency of proceedings.
Importantly, this does not dilute SEBI’s oversight. The principle-based criteria under Clause 3(a) continue to allow SEBI to consider serious or adverse developments on a case-to-case basis, including the nature and gravity of pending proceedings, while assessing overall fitness and propriety.
b) Expansion of conviction-based disqualification
Clause 3(b)(v) of Schedule II which earlier triggered disqualification only upon conviction for an offence involving moral turpitude, has now been expanded to also include economic offences and the offences under securities laws. Accordingly, now the disqualification will also extend to convictions for economic offences or securities law offences, in addition to offences involving moral turpitude. This change aligns the Intermediaries Regulations with the SECC Regs and DP Regs and ensure the ‘fit and proper’ test captures a broader range of serious market violations.
c) Rationalisation of winding-up related disqualification
Under Clause 3(b)(vi) of the earlier framework, initiation of winding-up proceedings itself triggered disqualification; however, pursuant to the amendments, such reference has been omitted, and disqualification will now arise only upon the passing of a winding-up order, recognising that proceedings under the Insolvency and Bankruptcy Code, 2016 may lead to resolution and revival and therefore should not, at the initiation stage alone, impact ‘fit and proper’ status, while also aligning the Intermediaries Regulations with the approach under the SECC Regs and DP Regs.
d) Introduction of disclosure obligations and express hearing requirement
Pursuant to the amendments, SEBI has inserted new Clauses 3A and 3B in Schedule II. Under Clause 3A, intermediaries are required to inform SEBI of the occurrence of any event specified under Clause 3(b) in respect of themselves, their KMPs or persons in control (i.e., promoters, including persons holding controlling interest or exercising direct or indirect control over the intermediary, and in the case of an unlisted entity, any person holding 20% or more voting rights), within the prescribed timeline.
Further, Clause 3B expressly provides that any determination of a person as not ‘fit and proper’ will be made only after granting such person a reasonable opportunity of being heard.
These changes codify existing practice, enhance procedural clarity, and place a clear onus on intermediaries to ensure timely disclosures to SEBI.
e) Removal of default five-year prohibition
Under Clause 4 of the earlier framework, where SEBI, by an order, declared a person as not ‘fit and proper’ but did not specify the period of ineligibility, a default prohibition of 5 (five) years would automatically apply i.e., the person would be barred from applying for or obtaining registration as an intermediary for that period.
Pursuant to the amendments, this deeming provision has been removed. As a result, any such restriction on applying for registration will apply only for the period expressly specified in SEBI’s order declaring the person as not ‘fit and proper’.
This change addresses the earlier “one-size-fits-all” approach and allows SEBI to calibrate the duration of restrictions based on the facts and severity of each case.
f) Relaxation of registration restrictions linked to show cause notices (“SCN”)
Under Clause 5 of the earlier framework, where a SCN had been issued to an applicant, its KMPs or persons in control under the Intermediaries Regulations or Sections 11(4) or 11B of the SEBI Act, the application for registration would not be considered for a period of 1 (one) year or until the conclusion of proceedings, whichever was earlier.
Pursuant to the amendments, the scope of this restriction has been narrowed to apply only to proceedings under Section 11B(1) that may result in directions by SEBI (and not merely monetary penalties). Further, the period of non-consideration has been reduced from 1 (one) year to 6 (six) months.
This reduces uncertainty for applicants and ensures that registration is not unduly delayed, particularly in cases where proceedings are prolonged without the fault of the applicant.
g) Divestment requirement for persons in control – position retained in 2026 Amendment Regulations
Under the second proviso to Clause 6 of the earlier framework, where a person in control was found not to be ‘fit and proper’, such person was required to both: (i) cease exercising voting rights; and (ii) divest their holdings within the prescribed timeline.
While the Consultation Paper proposed a relaxation to this requirement, suggesting that only voting rights be restricted and that mandatory divestment be dispensed with, this proposal has not been carried through in the final amendments. The 2026 Amendment Regulations continues to require both restriction of voting rights and divestment of holdings. That said, the 2026 Amendment Regulations introduce a notable shift in the triggering standard. Under the earlier framework, the consequences were linked to a person “failing to satisfy the fit and proper person criteria” or incurring a disqualification. In contrast, the 2026 Amendment Regulations narrows this to cases where a person is “declared as not fit and proper person’ by the Board. Accordingly, the trigger has moved from a broader, principle-based standard to a specific, formal determination by SEBI.
In summary, while the substantive requirement of divestment remains unchanged, the amendment narrows the trigger for invocation of such consequences and standardises the drafting.
Impact on GIFT City
In GIFT City, entities seeking registration with the IFSCA are also required to satisfy the ‘fit and proper person’ criteria, which constitutes as one of the pre-conditions for registration under the IFSCA regulatory framework. This requirement is expressly provided, for instance, under Regulation 8 of the IFSCA (Capital Market Intermediaries) Regulations, 20255 and Regulation 9 of the IFSCA (Fund Management) Regulations, 20256.
IFSCA’s regulatory approach is guided by global best practices and aims to ensure consistency with internationally accepted standards. In this context, the ‘fit and proper person’ criteria under the IFSCA regulatory framework is closely aligned in substance with analogous requirements under the Intermediaries Regulations, both in terms of structure and underlying principles. As a result, the approach adopted in GIFT City closely mirrors the SEBI regime, including the reliance on a combination of principle-based criteria and rule-based criteria.
In light of the recent refinements introduced by SEBI, particularly the shift towards a more principle-based assessment, and a move away from automatic disqualifications, it is likely that a similar considerations may inform the evolution of IFSCA regime over time.. While no corresponding amendments have been notified by IFSCA to date, a recalibration of its framework cannot be ruled out, especially given its mandate to ensure regulatory convergence with global standards and peer jurisdictions.
Overall takeaway
Overall, the 2026 Amendment Regulations reflect a more calibrated regulatory approach. SEBI has moved away from automatic, event-based disqualifications towards a framework that relies more on judgment, materiality, and final outcomes.
For intermediaries, the changes reduce compliance friction and regulatory uncertainty. At the same time, SEBI retains sufficient discretion to intervene in cases involving genuine risks to market integrity.
From an AIF and FPI perspective, the amendments are largely positive, particularly in providing clearer and more defined parameters. Intermediaries should, however, ensure that ‘fit and proper’ declarations are updated and aligned with the revised framework, in light of the amendments now being in force.
Akash Shirore, Sehar Sharma and Chandrashekar K
You can direct your queries or comments to the authors.
1SEBI (Intermediaries) (Amendment) Regulations, 2026. Available here.
2SEBI | Key decisions taken in the SEBI Board Meeting dated 23rd March, 2026. Available here.
3SEBI | Consultation paper on proposed amendments to Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 – ‘Fit and Proper Person’ Criteria. Available here.
4Regulation 2 (g) of SEBI (Intermediaries) Regulations, 2008.
5Regulation 8 of the IFSCA (Capital Market Intermediaries) Regulations, 2025. Accessible here.
6Regulation 9 of the IFSCA (Fund Management) Regulations, 2025. Accessible here.