## Report on the Securities and Exchange Board of India (SEBI) Intermediaries Third Amendment Regulations, 2021
**1. Executive Summary:**
This report analyzes the Securities and Exchange Board of India (SEBI) Intermediaries Third Amendment Regulations, 2021, as published in the Gazette of India on November 17, 2021. This amendment modifies the Securities and Exchange Board of India Intermediaries Regulations, 2008. The core purpose of the amendment is to revise the criteria for determining whether an applicant or intermediary, including key personnel and controlling entities, meets the "fit and proper person" requirements. Key findings reveal a strengthened emphasis on integrity, ethical conduct, and the absence of disqualifications based on criminal, financial, or regulatory proceedings. The amendment also specifies procedures related to disqualification and replacement of individuals failing to meet the fit and proper criteria.
**2. Introduction:**
This report aims to provide a concise overview of the Securities and Exchange Board of India Intermediaries Third Amendment Regulations, 2021 (hereinafter referred to as "the Amendment"), based solely on the provided text. It outlines the key changes introduced by the Amendment, its rationale, and potential impact on affected stakeholders within the securities market.
**3. Policy Overview:**
* This is an amendment to the Securities and Exchange Board of India Intermediaries Regulations, 2008.
* The core objective of this amendment, as inferred from the provided text, is to refine and strengthen the "fit and proper person" criteria for intermediaries operating within the purview of SEBI regulations. This involves clarifying the factors considered in determining fitness and outlining specific disqualifications.
**4. Background and Rationale:**
This amendment appears to address potential ambiguities or gaps in the existing "fit and proper person" criteria within the Securities and Exchange Board of India Intermediaries Regulations, 2008. The rationale seems to be driven by a need to enhance regulatory oversight, ensure the integrity of market participants, and mitigate risks associated with individuals or entities involved in financial misconduct or lacking in ethical standards. The detailed list of disqualifications suggests a proactive approach to preventing individuals with questionable backgrounds from holding key positions within intermediary organizations.
**5. Key Provisions / Changes:**
This Amendment specifically focuses on Schedule II of the Securities and Exchange Board of India Intermediaries Regulations, 2008, substituting it entirely. The key changes introduced include:
* **Strengthened Criteria for "Fit and Proper Person":** The amended regulations outline factors to be considered when determining if someone is a "fit and proper person", including integrity, honesty, ethical behavior, reputation, fairness, and character.
* **Detailed Disqualifications:** A comprehensive list of disqualifications is provided, including pending criminal complaints or charge sheets, orders of restraint or debarment, recovery proceedings, convictions for moral turpitude, winding-up proceedings, insolvency, unsound mind declarations, categorization as a willful defaulter or fugitive economic offender, and any other disqualification specified by the Board.
* **Impact of Disqualification:** Individuals declared "not fit and proper" by SEBI are ineligible to apply for registration for a specified period or for five years if no period is specified.
* **Application Review Suspension:** Applications may be suspended for one year or until the conclusion of proceedings if a show cause notice has been issued under relevant regulations or sections of the SEBI Act.
* **Associate Disqualifications:** Disqualifications of associate or group entities do not automatically disqualify the applicant/intermediary unless the applicant/intermediary or a related person also incurs the same disqualification.
* **Mandatory Replacement/Divestment:** If a person related to the intermediary fails to satisfy the fit and proper person criteria, the intermediary must replace them within thirty days (for principal officers, directors, managing partners, compliance officers, and key management persons) or ensure divestment of voting rights/holdings within six months (for promoters or persons with controlling interest). Failure to do so may result in the fit and proper criteria being invoked against the intermediary itself.
* **Continued Compliance:** The fit and proper person criteria shall be applicable at the time of application of registration and during the continuity of registration.
The effect of these changes is to create a more rigorous and transparent framework for assessing the suitability of individuals and entities involved in the securities market. It also places a greater responsibility on intermediaries to actively monitor and address any instances where individuals connected to them fail to meet the "fit and proper person" criteria.
**6. Target Audience and Stakeholders:**
Based on the text, the primary target audience and stakeholders include:
* **Securities Market Intermediaries:** All entities registered or seeking registration as intermediaries under SEBI regulations.
* **Key Personnel of Intermediaries:** Principal officers, directors, managing partners, compliance officers, and key management persons within intermediary organizations.
* **Promoters and Controlling Persons:** Individuals or entities holding controlling interest or exercising control over intermediaries.
* **Applicants for Intermediary Registration:** Entities seeking to become registered intermediaries.
**7. Implementation Aspects (Inferred):**
* **Responsible Agency/Bodies:** The Securities and Exchange Board of India (SEBI) is the primary responsible body for implementing and enforcing these amended regulations.
* **Timelines/Procedures:** The amendment specifies timelines for replacement of disqualified personnel (30 days) and divestment of holdings by disqualified controlling persons (6 months). It also outlines a one-year suspension period for application review if a show cause notice has been issued.
* **Specific to Changes:** Intermediaries will need to establish procedures for ongoing monitoring of their key personnel and controlling entities to ensure continued compliance with the "fit and proper person" criteria. They will also need to develop contingency plans for replacing disqualified individuals or facilitating divestment of holdings within the specified timelines.
**8. Expected Outcomes / Impact of Changes:**
The likely intended outcomes of these amendments are:
* **Enhanced Integrity and Ethical Conduct:** Increased focus on integrity and ethical behavior among intermediaries and their key personnel.
* **Reduced Risk of Financial Misconduct:** Mitigation of risks associated with individuals or entities with questionable backgrounds.
* **Improved Market Confidence:** Increased investor confidence in the integrity and stability of the securities market.
* **Greater Regulatory Oversight:** Strengthening of SEBI's regulatory oversight and enforcement capabilities.
* **Increased Accountability:** Increased accountability for intermediaries in ensuring that their personnel and controlling entities meet the required standards of fitness and propriety.
**9. Conclusion:**
The Securities and Exchange Board of India Intermediaries Third Amendment Regulations, 2021, represents a significant step towards strengthening the regulatory framework governing intermediaries in the Indian securities market. By refining and expanding the "fit and proper person" criteria, SEBI aims to promote integrity, ethical conduct, and investor protection. The specific changes introduced by the amendment will have a direct impact on intermediaries, their key personnel, and controlling entities, requiring them to adhere to stricter standards and implement robust monitoring procedures.
Key Entities Referenced
SECURITIES AND EXCHANGE BOARD OF INDIA: Regulatory body in India for securities and commodity market.
Securities and Exchange Board of India Act, 1992: Act of the Parliament of India to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market
Securities and Exchange Board of India Intermediaries Regulations, 2008: Regulations pertaining to intermediaries in the securities market as defined by SEBI.
Securities and Exchange Board of India Intermediaries Third Amendment Regulations, 2021: Amendment to the Securities and Exchange Board of India Intermediaries Regulations, 2008
Mumbai, Maharashtra: Location of the Securities and Exchange Board of India office that issued the notification
Official Gazette: Publication where the regulations are officially published.
Code of Criminal Procedure, 1973: The main legislation on procedure for administration of criminal law in India.
Schedule II: Schedule within the Securities and Exchange Board of India Intermediaries Regulations, 2008 that is being substituted.
Ajay Tyagi: Chairman of the Securities and Exchange Board of India.
Securities and Exchange Board of India Stock Brokers and SubBrokers Amendment Regulations, 2008: Amendment to regulations pertaining to stock brokers and sub-brokers.
Securities and Exchange Board of India Foreign Portfolio Investors Regulations, 2014: Regulations pertaining to foreign portfolio investors.
Securities and Exchange Board of India Regulatory Sandbox Amendment Regulations, 2020: Amendment to regulations pertaining to regulatory sandbox.
New Delhi: Location where gazette of india is printed and published
रजजस्ट्री स.ं डी.एल.- 33004/99 REGD. No. D. L.-33004/99
xxxGIDHxxx
सी.जी.-एम.एxxचxG.-IअDE.-x1x7x1 12021-231210
CG-MH-E-17112021-231210
असाधारण
EXTRAORDINARY
भाग III—खण् ड 4
PART III—Section 4
प्राजधकार स ेप्रकाजित
PUBLISHED BY AUTHORITY
स.ं 576] नई ददल्ली, बुधिार, निम्ब र 17, 2021/कार्ततक 26, 1943
No. 576] NEW DELHI, WEDNESDAY, NOVEMBER 17, 2021/KARTIKA 26, 1943
भारतीय प्रजतभजू त और जिजनमय बोड ड
अजधसचू ना
मुम्बई, 17 निम् बर, 2021
भारतीय प्रजतभजू त और जिजनमय बोडड ( ) ( सिं ोधन) जिजनयम, 2021
स.ं / - नआ ओ/ न/2021/59.—बोडड, भारतीय प्रजतभूजत और जिजनमय बोड ड अजधजनयम, 1992
(1992 का 15) की धारा 30 क ह न क गई िजियों का प्रयोग करते हुए एतद्द्वारा भारतीय प्रजतभूजत और जिजनमय
बोडड ( ) जिजनयम, 2008 का औ संिोधन करन े के जलए जनम्नजलजखत जिजनयम बनाता ह,ै अथाडत ् :-
1. इन जिजनयमों को भारतीय प्रजतभूजत और जिजनमय बोडड ( ) ( संिोधन) जिजनयम, 2021 कहा जा
सकेगा ।
2. ये राजपत्र म ेंइनके प्रकािन की तारीख को लाग ू होंग े ।
3. भारतीय प्रजतभूजत और जिजनमय बोडड ( ) जिजनयम, 2008 म,ें -
I. न II जनम्नजलजखत ह ग , अथाडत ्–
6646 GI/2021 (1)2 THE GAZETTE OF INDIA : EXTRAORDINARY [PART III—SEC.4]
" न II
(1) आ क ( ) उन न क क ग , आ क ग
ह औ नक जिजनयमों (रे ल ेिन) क ग ह , न ह:
(क) ह न ( ) औ क क ह
औ ह ; औ
(ख) उ क ह , - (न ) क न
ह ।
(2) ‘उ उ ’ न न ख ग ह ग:
(क) आ क ( ) पर;
(ख) क ( ), न कों ग रों ( न ग न ), न न
क (क ) औ - क यों (क न न) [ ह
उ ह क न क ह ] पर; औ
(ग) आ क ( ) , , न क ह (क ग
) खन कों ( ) यों पर आ क ,
, न खन यों पर:
ह क ग ( न ) आ क क , उ
क क खन क ( ह उ क न क ह ह न ह ह
न ख ह न ख ह ) क यह जरूरी होगा दक ह ‘उ क उ ’
न करे ।
क – उ -ख क न , आ क क “ न क ह ”
औ “ न ” क उस आ क ग न क न ग
ग ।
(3) ह क न क उद्दे से क क ई ‘उ उ ’ ह नह , दकसी न
क क ग ह क , स न न ह क इन क ह
नह ह:
(क) उस क न , उ क ई न , उ क न क आ , उ क ख, उ क न
औ उ क ;
(ख) ह जन नु दकसी भी क न हुआ ह :
(i) क ख ह , 1973 (1974 क 2) क 154 क
ह आ क क ( न क ) न क गई ह औ न
ह ;
(ii) क न ( ) क ख आ क
आ - ( ) ख क ग ह औ न ह ;[भाग III—खण् ड 4] भारत का राजपत्र : असाधारण 3
(iii) क न क क ( अथॉररटी) न ( )
ऐस े व्यजि के जखलाफ ( ) क न न न
( ) क क ग त े हुए, क ते
हुए करते हुए क ई आ क ग ह औ आ ग ह ;
(iv) क ख क ह ( क ) क गई ह औ
ह ह ;
(v) दकसी न्यायालय रा क ख न क क क
आ क क ई आ क ग ह ;
(vi) क ख न ( ग ) क क ई क ह क गई ह
न क क ई आ क ग ह ;
(vii) क घ क ग ह औ न क ग ह ;
(viii) सक्षम अजधकाररता िाल े न्यायालय द्वारा यह जनष्कर्ड जनकाला गया हो दक व्यजि की
ददमागी हालत ठीक नहीं ह ैऔर िह जनष्कर्ड अब भी लाग ूहो;
(ix) क न कक ( न क क क न / जिलफुल जडफॉल्टर) क
ख ग ह ;
(x) क ग आ क घ क ग ह ;
(xi) ह न क क ई औ आ , - न क ।
(4) ह क क आ क न क क ह घ क क ह ‘उ
उ ’ नह ह, उ आ ई गई क न उ आ क ग ह न
क ख क क ( उ आ क क न क ग ह )
क क ( न) ह आ न क न क नह ह ग ।
(5) ( ) क क ह आ न ख क , आ क ख (2)
उ ख क क ख न न क ह न क 11(4)
11ख(11 ) क ह क ह क क ई क ओ न ( क न ) क गई
ह , क न क न ह क ग क आ न , न (न )
क न क ख क क क क ह ह न क ( ह ह ),
नह क ग ।
(6) आ क क क ई ह ग ( ह / ) उ क क ई ख (3) क
उ -ख (ख) क न ह , उ क क ह नह नक ग क आ क
‘उ उ ’ न ख नह उ , क क आ क
ख (2) उ ख क ई उ उ ह न ह :
ह क ख (2) क उ -ख (ख) उ ख क ई ‘उ उ ’
न क नह क , क क गह, क उ क ह4 THE GAZETTE OF INDIA : EXTRAORDINARY [PART III—SEC.4]
न क ख न क , क ई न ह ग , औ न क न ‘उ
उ ’ न क क ख क ह क क ग :
ह औ क ख (2) क उ -ख (ग) उ ख क ई ‘उ उ ’
न क नह क , ह न क ग क क
क क ग न क औ ह क , क उ क ह न क ख छह
ह न क न (ह ग) , औ न क न ‘उ उ ’
न क क ख क ह क क ग ।
(7) ‘उ उ ’ न क ह आ न क ग ह ग औ
क क हन क ग हग , औ ह न क ग क ख (2) क उ -ख (ख)
उ -ख (ग) उ ख ‘उ उ ’ न क न क ।”
अजय त्यागी, अध्यक्ष
[जिज्ञापन-III/4/असा./440/2021-22]
पाद रटप्पण :
1. भारतीय प्रजतभूजत और जिजनमय बोडड ( ) जिजनयम, 2008, न सं. एलएडी-
एनआरओ/जीएन/2008/11/126538 26 ई, 2008 क भारत के राजपत्र, ग III, ख 4 म ें प्रकाजित
हुए थ े।
2. भारतीय प्रजतभूजत और जिजनमय बोडड ( ) जिजनयम, 2008 तत्पश्चात ्:-
क) 11 ग , 2008 क भारतीय प्रजतभूजत और जिजनमय बोड ड ( क और उ - ) ( न)
जिजनयम, 2008, न स.ं एलएडी-एनआरओ/जीएन/2008/20/134766, द्वारा
ख) 14 ई, 2009 क भारतीय प्रजतभूजत और जिजनमय बोड ड ( ) ( न) जिजनयम, 2009,
न स.ं एल.ए.डी.-एन.आर.ओ./जी.एन./2009-10/12/169546, द्वारा
ग) 7 न , 2014 क भारतीय प्रजतभूजत और जिजनमय बोडड [ न नक
( न क)] जिजनयम, 2014, न स.ं एल.ए.डी.एन.आर.ओ./जी.एन./2013-14/36/12, द्वारा
घ) 25 मई, 2016 क भारतीय प्रजतभूजत और जिजनमय बोड ड ( ) ( न) जिजनयम, 2016,
न स.ं सेबी/एल.ए.डी.-एन.आर.ओ./जी.एन./2016-17/006, द्वारा
ङ) 21 निम्बर, 2017 क भारतीय प्रजतभूजत और जिजनमय बोड ड ( ) ( न) जिजनयम, 2017,
न स.ं सेबी/एल.ए.डी.-एन.आर.ओ./जी.एन./2017-18/021, द्वारा
च) 17 अप्रलै , 2020 को भारतीय प्रजतभूजत और जिजनमय बोडड (रेग्यूलेटरी सैंडबॉक्स) (संिोधन) जिजनयम,
2020, न सं. सेबी/एल.ए.डी.-एनआरओ/जीएन/2020/10, द्वारा
छ) 21 न , 2021 को भारतीय प्रजतभूजत और जिजनमय बोडड ( ) (संिोधन) जिजनयम, 2021,
न सं. सेबी/एलएडी-एनआरओ/जीएन/2021/07, द्वारा
ज) 5 ई, 2021 को भारतीय प्रजतभूजत और जिजनमय बोडड ( ) ( संिोधन) जिजनयम, 2021,
न सं. सेबी/एलएडी-एनआरओ/जीएन/2021/20, द्वारा
झ) 3 अगस्ट्त, 2021 को भारतीय प्रजतभूजत और जिजनमय बोड ड (रेग्यलू ेटरी सडैं बॉक्स) (संिोधन) जिजनयम,
2021, न सं. सेबी/एलएडी-एनआरओ/जीएन/2021/30, द्वारा
संिोजधत हुए थे ।[भाग III—खण् ड 4] भारत का राजपत्र : असाधारण 5
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;6 THE GAZETTE OF INDIA : EXTRAORDINARY [PART III—SEC.4]
(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.[भाग III—खण् ड 4] भारत का राजपत्र : असाधारण 7
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.
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