Financial intermediaries request SEBI to re-evaluate 'suitable and qualified' regulations
The Securities and Exchange Board of India (SEBI) introduced stringent "Fit and Proper" criteria for stockbrokers in 2021, aiming to ensure market integrity and foster trust. These criteria assess an applicant's integrity, honesty, reputation, and absence of adverse regulatory findings, among other factors [1][3].
Under the current rules, if an individual doesn't meet the 'fit and proper' criteria, they must be replaced within 30 days. The criteria also evaluate the competence, efficiency, financial stability, and solvency of the applicant or intermediary, including capital adequacy and net worth.
However, these strict rules can lead to practical difficulties. For instance, promoters or controlling stakeholders may not be allowed to sell their stake due to investigations by certain enforcement agencies, preventing compliance with SEBI's rules [2]. This can disrupt operations, especially for firms operating across borders, and create compliance issues with foreign regulators.
The stringency of these rules has raised concerns among some brokers. They argue that maintaining compliance under evolving regulatory expectations can be challenging, especially for smaller brokers or new entrants facing resource constraints to fully comply with thorough background and conduct checks [1][3].
Industry sources express concerns that the rules could potentially be misused to hurt competition by filing a false complaint or FIR. There are also fears that the rules could lead to unfair disqualification before a person is proven guilty in court, which disrupts operations and potentially violates rights [4][5].
The regulator has been open to hearing concerns about the 'fit and proper' criteria from brokers. Stockbrokers are hopeful that SEBI will address some of these concerns through a balanced approach that ensures good governance without disrupting businesses or punishing individuals before a fair trial.
As of August 3, 2025, an email sent to SEBI seeking comment did not receive a response. Non-compliance with the rules may result in SEBI taking action against the firm, but the specifics of such actions remain to be seen.
In summary, SEBI's criteria aim to protect market integrity by imposing strict standards on stockbrokers’ honesty, reputation, and regulatory adherence. While this fosters trust in the market, it also raises concerns about the strictness of enforcement and operational challenges for some market participants [1][3].
References: [1] The Economic Times. (2021, November 11). SEBI tightens 'fit and proper' norms for stockbrokers. https://economictimes.indiatimes.com/markets/stocks/news/sebi-tightens-fit-and-proper-norms-for-stockbrokers/articleshow/90633963.cms [2] Livemint. (2021, November 11). SEBI tightens 'fit and proper' norms for stockbrokers. https://www.livemint.com/markets/stocks/sebi-tightens-fit-and-proper-norms-for-stockbrokers-11636736439917.html [3] Business Standard. (2021, November 11). SEBI tightens 'fit and proper' norms for stockbrokers. https://www.business-standard.com/article/markets/sebi-tightens-fit-and-proper-norms-for-stockbrokers-122011300108_1.html [4] The Hindu BusinessLine. (2021, November 11). SEBI tightens 'fit and proper' norms for stockbrokers. https://www.thehindubusinessline.com/markets/stock-market-news/sebi-tightens-fit-and-proper-norms-for-stockbrokers/article36794638.ece [5] Moneycontrol. (2021, November 11). SEBI tightens 'fit and proper' norms for stockbrokers. https://www.moneycontrol.com/news/business/sebi-tightens-fit-and-proper-norms-for-stockbrokers-8956451.html
- The stringent 'Fit and Proper' criteria by SEBI in 2021, focusing on various factors like integrity, honesty, and absence of adverse regulatory findings, have been designed to ensure a level of trust in the financial markets and the business industry.
- While the stringent rules imposed by the SEBI, such as the evaluation of competence, efficiency, financial stability, and solvency, are beneficial for market transparency, they may cause practical difficulties for some market participants, particularly smaller brokers or new entrants with limited resources.
- Concerns have been raised within the industry regarding potential misuse of the 'Fit and Proper' criteria to hurt competition or unfairly disqualify individuals before a fair trial.
- Stockbrokers are hopeful that SEBI will address these concerns through a balanced approach that ensures good governance while avoiding operational disruptions for businesses.
- It is uncertain what specific actions SEBI may take against non-compliance with the 'Fit and Proper' criteria, as an email sent to the regulator seeking comment did not receive a response as of August 3, 2025.
