The Securities Exchange Board of India (“SEBI/ Board”) on November 17, 2021 had introduced the Securities and Exchange Board of India (Intermediaries) (Third Amendment) Regulations, 2021 (“Amendment Regulation”), amending the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (“Principal Regulation”), with effect from November 17, 2021. The Amendment Regulation substitutes the Schedule II of the Principal Regulation.
The key changes in the in the Amendment Regulation are as follows:
1. The applicant/ intermediary should meet all the criteria under the respective regulations as applicable, including the competence and capability requirements of infrastructure and manpower, and meeting the net worth requirements.
2. The criteria of the ‘fit and proper person’ criteria would apply to:
a) applicant/ intermediary;
b) principal office, directors, managing partners, compliance officer and all other key management persons;
c) promoters or persons holding controlling interest or persons exercising control directly/ indirectly over the intermediary/applicant; and
d) Unlisted applicant/ intermediary, (for persons holding 20% (twenty percent) or more voting rights).
3. For determining the ‘fit and proper person’ criteria applicant/ intermediary should not be subjected to the following disqualifications:
a) criminal complaint filed/ pending under section 154 of the Code of Criminal Procedure, 1973;
b) charge sheet filed for economic offences by any enforcement agency and pending proceedings thereto;
c) an order of restraint, prohibition or debarment on matters of securities laws or financial market passed the Board/ regulatory authority/ enforcement agency;
d) any recovery proceedings pending or initiated by the Board;
e) conviction of any offence involving moral turpitude;
f) winding proceedings passed or initiated;
g) declared insolvent and not discharged;
h) unsoundness of mind;
i) a wilful defaulter;
j) declared a fugitive economic offender; and
k) any other disqualification as may be specified by the Board.
4. A person declared as not ‘fit and proper person’ by the Board will not be allowed to apply for registration for the time period specified in the order, and in case where no such time period is specified, for a period of 5 (five) years from the date of effect of the order.
5. If a show cause notice has been issued to an applicant/ intermediary under the Amendment Regulation or under section 11(4) and section 11B of the Securities and Exchange Board of India Act, 1992, the application for registration will not be considered for a period of 1 (one) year from the date of the issuance of the notice or till the conclusion of the proceedings, whichever is earlier.
6. Any disqualification of an associate or group entity of the applicant/ intermediary as mentioned in clause (iii), will not an effect on the ‘fit and proper person’ criteria of the applicant/ intermediary. If any person, as referred in clause ii(b) fails to fulfill the criteria of ‘fit and proper person,’ the same will be replaced within 30 (thirty) days from date of the disqualification. Similarly, if any person as referred in clause ii(c) fails to fulfill the criteria of ‘fit and proper person’, the same will be barred from exercising voting rights and would be required to divest their holding within 6 (six) months from the date of the disqualification.
7. The ‘fit and proper person’ criteria will be applicable from the application for registration till the continuity of the registration.
Please find a copy of the Amendment Regulation here.
This update has been contributed by Nidhi Arya (Partner) and Shobhit Dave (Associate).
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