By removing rule-based exits triggered merely by FIRs, criminal complaints or charge sheets, SEBI is separating allegation from culpability and tying regulatory consequences more closely to convictions and reasoned regulatory findings, said experts. Photo Credit: HEMANSHI KAMANI
Securities market intermediaries may see lower mechanical regulatory shocks under the Securities and Exchange Board of India’s (SEBI’s) proposed overhaul of the ‘fit and proper person’ framework, but enforcement intensity is likely to rise as the regulator shifts towards conduct-based supervision.
By removing rule-based exits triggered merely by FIRs, criminal complaints or charge sheets, SEBI is separating allegation from culpability and tying regulatory consequences more closely to convictions and reasoned regulatory findings, said experts.
“The framework restores primacy to the presumption of innocence and mitigates the risk of commercial annihilation on the basis of untested allegations,” said Tushar Kumar, Advocate, Supreme Court of India. The move replaces rigid exclusions with a “fact-sensitive, adjudicatory approach grounded in proportionality and due process,” he said.
“In the absence of mechanical disqualifications, enforcement will become more intensive and evidence-driven,” Kumar said, adding that oversight is likely to deepen rather than dilute.
Lower cliff-edge risk
The move is expected to significantly reduce cliff-edge regulatory risk for promoters and intermediaries, without reducing accountability. “The earlier framework conflicted allegation with culpability,” said Rishabh Gandhi, Founder, Rishabh Gandhi and Advocates. “The shift lowers automatic consequences but not regulatory exposure. It increases the importance of conduct-based assessment by the regulator.”
He further said that automatic loss of control earlier discouraged early enforcement action because of systemic fallout. “Removing that linkage enables more calibrated and frequent intervention,” Gandhi said.
Control concerns
The discretion-led regime could allow individuals facing serious economic offense investigations to retain control of market entities for extended periods, given the slow pace of criminal trials, experts.
“The trigger now moves to conviction or formal regulatory declaration,” said Alay Razvi, Managing Partner, Accord Juris. “That potentially extends control windows and raises integrity risks, even though SEBI’s hearing-based powers offer safeguards.”
Others countered that SEBI’s principle-based powers remain sufficient to act in egregious cases.
“The regulatory risk for intermediaries would now ordinarily crystallize only on conviction in the criminal or economic offense-related proceedings,” said Vanya Singh, Partner, Cyril Amarchand Mangaldas. “In grave cases, SEBI would still have discretion to disqualify applicants under principle-based criteria relating to integrity, honesty and reputation.”
IBC alignment
A major structural shift is the proposal to link disqualification to actual winding-up orders rather than the initiation of insolvency proceedings. This aligns securities regulation with the resolution-first philosophy of the Insolvency and Bankruptcy Code and prevents regulatory action from itself triggering collapse.
“Early regulatory disqualification often destroyed the chance of revival,” Gandhi said.
Hardeep Sachdeva, Senior Partner, AZB & Partners, said, “While this change may reduce premature disruption for intermediaries and promoters, it also places greater emphasis on timely enforcement and disclosure. The mandatory event-based reporting framework will undoubtedly raise compliance costs, but it enhances transparency and investor confidence.”
From an investment standpoint, he said the reforms could revive interest from private equity and strategic investors in brokerages and market platforms.
Published on February 5, 2026