The fit-and-proper test
Each IFSCA framework has fit-and-proper criteria; the firm's booklets trace them across the payment services, ITFS, market infrastructure and ancillary services regulations. The Fund Management Regulations, 2025 show the standard form. Regulation 9 requires the applicant and its principal officer, directors, partners or designated partners, KMPs and controlling shareholders to be fit and proper persons at all times. A person is fit and proper if they have a record of fairness and integrity (financial integrity, good reputation and character, honesty) and none of the listed disqualifications applies. These include:
- conviction for an offence involving moral turpitude, an economic offence or an offence against securities laws;
- a pending charge sheet, or charges framed, in economic-offence matters;
- a pending recovery proceeding by a financial regulator;
- winding up for malfeasance, or undischarged insolvency;
- a regulatory order debarring the person from financial products or services that remains in force, or another order with a material bearing on the securities market within the last three years;
- classification as a wilful defaulter or fugitive economic offender, or not being financially sound.
A person declared not fit and proper by a regulator cannot apply for registration until they meet the criteria again. Because the test is continuous, an event affecting a director or controller after registration is a compliance issue for the entity itself.
Key managerial personnel
Under regulation 7 of the Fund Management Regulations, an FME designates a principal officer, a compliance officer for registered FMEs, and additional fund-management KMPs in specified cases. All of them must be based out of the IFSC and meet the prescribed qualification and experience standards. The firm's compendium also refers to IFSCA's KMP eligibility guidelines of 25 July 2025. IFSCA enforces the presence requirement through surprise visits; see Inspections and enforcement.
Certification is now part of the standard. For capital market intermediaries, KMPs and other employees must complete the specified certification course, with the deadline extended to 31 December 2026 by IFSCA's circular of 30 September 2026. A parallel requirement applies to fund management entities. Under the AML Guidelines, the Designated Director and Principal Officer must hold the NISM-IFSCA-01 certification at all times. See KMP certification.
Changing KMPs
IFSCA's circular of 20 February 2025 sets the procedure for FMEs:
- file an intimation of the proposed appointment or change in the annexed format, with the fee;
- IFSCA communicates any comments within seven working days, and the FME takes them into account;
- the FME and the persons in control of it are responsible for ensuring the KMP meets the eligibility criteria;
- a vacancy must be intimated with a suitable candidate within three months, and the successor must join in the IFSC within six months of the predecessor's departure.
Plan succession so that a KMP vacancy never leaves the entity without a principal officer or compliance officer on site.
Changes in control and ownership
- IFSCA approval: under regulation 125 of the Fund Management Regulations, an FME needs IFSCA's prior approval for any direct or indirect change in control. IFSCA may impose conditions, including an exit opportunity for investors. A branch FME whose home regulator must approve the change only informs IFSCA, within 15 days.
- Fee: under the fee circular of 2 March 2026, a regulated entity seeking approval for a change in management or control pays a processing fee equal to 20 per cent of its licence, registration, recognition or authorisation fee.
- SEZ approval: under Instruction 109, a change in shareholding pattern, constitution or directors, or a merger or demerger, needs approval from the Unit Approval Committee via SEZ Online (see SEZ compliance).
Run the IFSCA and SEZ steps together, and settle the conditions before the transaction closes.
Governance in practice
- The compliance officer of an FME must monitor compliance and independently report any non-compliance to IFSCA (Third Schedule code of conduct).
- Fiduciaries of a scheme must themselves meet the fit-and-proper requirements (regulation 17(3)). The firm's compendium notes an April 2026 IFSCA circular barring trustees or boards of a fund from also providing administration, valuation, audit or lending services to the same scheme.
- Keep a fit-and-proper file for each director, controller and KMP, with declarations refreshed at least annually and on any trigger event.