SEBI (Intermediaries) (Third Amendment) Regulations, 2021

SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 17th November, 2021
SECURITIES AND EXCHANGE BOARD OF INDIA
(INTERMEDIARIES) (THIRD AMENDMENT) REGULATIONS, 2021

No. SEBI/LAD-NRO/GN/2021/59. - In exercise of the powers conferred under Section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations to further amend the Securities and Exchange Board of India (Intermediaries) Regulations, 2008, namely: -

1. These regulations may be called the Securities and Exchange Board of India (Intermediaries) (Third Amendment) Regulations, 2021.

2. They shall come into force on the date of their publication in the Official Gazette.

3. In the Securities and Exchange Board of India (Intermediaries) Regulations, 2008, –

I. Schedule II, shall be substituted by the following, namely –

“Schedule II

(1) The applicant or intermediary shall meet the criteria, as provided in the respective regulations applicable to such an applicant or intermediary including:

(a) the competence and capability in terms of infrastructure and manpower requirements; and

(b) the financial soundness, which includes meeting the net worth requirements.

(2) The ‘fit and proper person‘ criteria shall apply to the following persons:

(a) the applicant or the intermediary;

(b) the principal officer, the directors or managing partners, the compliance officer and the key management persons by whatever name called; and

(c) the promoters or persons holding controlling interest or persons exercising control over the applicant or intermediary, directly or indirectly:

Provided that in case of an unlisted applicant or intermediary, any person holding twenty percent or more voting rights, irrespective of whether they hold controlling interest or exercise control, shall be required to fulfill the ‘fit and proper person‘ criteria.

Explanation– For the purpose of this sub-clause, the expressions “controlling interest” and “control” in case of an applicant or intermediary, shall be construed with reference to the respective regulations applicable to the applicant or intermediary.

(3) For the purpose of determining as to whether any person is a ‘fit and proper person‘, the Board may take into account any criteria as it deems fit, including but not limited to the following:

(a) integrity, honesty, ethical behaviour, reputation, fairness and character of the person;

(b) the person not incurring any of the following disqualifications:

(i) criminal complaint or information under section 154 of the Code of Criminal Procedure, 1973 (2 of 1974) has been filed against such person by the Board and which is pending;

(ii) charge sheet has been filed against such person by any enforcement agency in matters concerning economic offences and is pending;

(iii) an order of restraint, prohibition or debarment has been passed against such person by the Board or any other regulatory authority or enforcement agency in any matter concerning securities laws or financial markets and such order is in force;

(iv) recovery proceedings have been initiated by the Board against such person and are pending;

(v) an order of conviction has been passed against such person by a court for any offence involving moral turpitude;

(vi) any winding up proceedings have been initiated or an order for winding up has been passed against such person;

(vii) such person has been declared insolvent and not discharged;

(viii) such person has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force;

(ix) such person has been categorized as a wilful defaulter;

(x) such person has been declared a fugitive economic offender; or

(xi) any other disqualification as may be specified by the Board from time to time.

(4) Where any person has been declared as not ‘fit and proper person‘ by an order of the Board, such a person shall not be eligible to apply for any registration during the period provided in the said order or for a period of five years from the date of effect of the order, if no such period is specified in the order.

(5) At the time of filing of an application for registration as an intermediary, if any notice to show cause has been issued for proceedings under these regulations or under section 11(4) or section 11B of the Act against the applicant or any other person referred in clause (2), then such an application shall not be considered for grant of registration for a period of one year from the date of issuance of such notice or until the conclusion of the proceedings, whichever is earlier.

(6) Any disqualification of an associate or group entity of the applicant or intermediary of the nature as referred in sub-clause (b) of clause (3), shall not have any bearing on the ‘fit and proper person‘ criteria of the applicant or intermediary unless the applicant or intermediary or any other person referred in clause (2), is also found to incur the same disqualification in the said matter:

Provided that if any person as referred in sub-clause (b) of clause (2) fails to satisfy the ‘fit and proper person‘ criteria, the intermediary shall replace such person within thirty days from the date of such disqualification failing which the ‘fit and proper person‘ criteria may be invoked against the intermediary:

Provided further that if any person as referred in sub-clause (c) of clause (2) fails to satisfy the ‘fit and proper person‘ criteria, the intermediary shall ensure that such person does not exercise any voting rights and that such person divests their holding within six months from the date of such disqualification failing which the ‘fit and proper person‘ criteria may be invoked against such intermediary.

(7) The ‘fit and proper person‘ criteria shall be applicable at the time of application of registration and during the continuity of registration and the intermediary shall ensure that the persons as referred in sub-clauses (b) and (c) of clause (2) comply with the ‘fit and proper person‘ criteria. ”

AJAY TYAGI, Chairman

[ADVT.-III/4/Exty./440/2021-22]

Footnote:

1. The Securities and Exchange Board of India (Intermediaries) Regulations, 2008 was published in the Gazette of India, Part III Section 4 on May 26, 2008 vide notification No. LAD-NRO/GN/2008/11/126538.

2. The Securities and Exchange Board of India (Intermediaries) Regulations, 2008 was subsequently amended on:-

a) August 11, 2008 by the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) (Amendment) Regulations, 2008, vide notification No. LAD-NRO/GN/2008/20/134766.

b) July 14, 2009 by the Securities and Exchange Board of India (Intermediaries) (Amendment) Regulations, 2009, vide notification no. LAD-NRO/GN/2009-10/12/169546.

c) January 7, 2014 by the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014, vide notification no. LAD-NRO/GN/2013-14/36/12.

d) May 25, 2016 by the Securities and Exchange Board of India (Intermediaries) (Amendment) Regulations, 2016, vide notification no. SEBI/LAD-NRO/GN/2016-17/006.

e) November 21, 2017, by the Securities and Exchange Board of India (Intermediaries) (Amendment) Regulations, 2017, vide notification no. SEBI/LAD-NRO/GN/2017-18/021.

f) April 17, 2020, by the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2020, vide notification no. SEBI/LAD-NRO/GN/2020/10.

g) January 21, 2021, by the Securities and Exchange Board of India (Intermediaries) (Amendment) Regulations, 2021, vide notification no. SEBI/LAD-NRO/GN/2021/07.

h) May 5, 2021, by the Securities and Exchange Board of India (Intermediaries) (Second Amendment) Regulations, 2021, vide notification no. SEBI/LAD-NRO/GN/2021/20.

i) August 3, 2021, by the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2021, vide notification no. SEBI/LAD-NRO/GN/2021/30.