The Securities and Exchange Board of India (SEBI) on February 04, 2026, issued the consultation paper on proposed amendments to Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 – ‘Fit and Proper Person’ Criteria.
The following has been stated:
• The proposals clarify that mere initiation of proceedings—such as filing of FIRs, complaints, charge sheets, or commencement of winding-up/insolvency proceedings—shall not automatically render a person unfit, unless there is a final conviction, restraint order, or winding-up order, thereby aligning the framework with principles of natural justice.
• SEBI also proposes to expressly provide an opportunity of being heard before declaring any person not fit and proper, and to mandate timely disclosures (within 7 days) by intermediaries regarding any adverse events relating to their key management personnel or persons in control.
• Further, time-based restrictions are proposed to be rationalised by reducing the bar on considering registration applications after issuance of a show-cause notice from one year to six months, and by removing the automatic five-year disqualification where no specific period is prescribed in SEBI orders.
• The paper also proposes that intermediaries should be impacted by the disqualification of associated persons only when SEBI formally declares such persons unfit, with a requirement to replace such KMPs within a prescribed timeline.
• Additionally, instead of mandatory divestment of shareholding by unfit persons, SEBI proposes restriction of voting rights while allowing retention of economic ownership, to avoid irreversible financial prejudice.
• Overall, the proposals seek to balance investor protection with procedural fairness, reduce regulatory uncertainty, and make the FPP framework more transparent, objective, and proportionate.
The comments/suggestions in this regard may be submitted by February 25, 2026, through the link: [https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?d oPublicComments=yes]
