Sebi modifies the ‘fit and proper’ criteria for market infrastructure institutions (MIIs)

Sebi modifies the ‘fit and proper’ criteria for market infrastructure institutions (MIIs)

Subject :Economy

Section: Capital market

Context:: SEBI has tweaked the framework regarding the ‘fit and proper’ criteria after the original law faced objections from market participants.

Key Points:

• SEBI has tweaked the framework regarding the ‘fit and proper’ criteria for stock exchanges and other market infrastructure institutions (MII) whereby any adverse direction against them will not affect their operations.
• In its original form the law barred the intermediary if any key position holder if any charge sheet filed against them, and it did not cover stock exchanges and was only applicable on brokers and other intermediaries.
• Brokers had challenged the constitutionality of 2021 amendments to the intermediaries regulation that redefined fit and proper criteria for market intermediaries.
•  The present change is focused on separating the role of an individual from the institution. The regulator has amended Securities Contracts rules as well as depositories participants rules.
• What is the ‘fit and proper’ criteria?
  • An applicant has to meet certain criteria to be fit and proper. Those requirements include financial integrity, good reputation, honesty; no conviction in any court for any offence, or any other order like that by Sebi.
  • SEBI altered the criteria to determine ‘fit and proper person’. It is principle-based and/or rule-based.
    • The principle-based criteria include integrity, honesty, ethical behaviour, reputation, fairness, and character, according to the notification. Further, the rule-based norms determine the “fit and proper” status of the person based on the disqualifications stated by SEBI
• Who will it apply to?
  • SEBI said that ‘fit and proper person’ criteria will apply to the applicant, stock exchange, clearing corporation, depository, their shareholders, directors and key management personnel at all times.
  • Further, such Market Infrastructure Institutions (MIIs) will have to ensure that all its shareholders, directors and key management personnel are fit and proper persons at all times.
• If the criteria is not fulfilled?
  • If any director or key management personnel of a MII is not deemed to be fit and proper, such entities will have to replace such a person within 30 days from the date of such disqualification, failing which the fit and proper person criteria may be invoked against the MII
  • Further any disqualification of a MII will not have any bearing on the fit and proper status of the directors or key management personnel. (separation of individual from the institution)