When you are dealing with an established organization, there are usually rules on who can promote to what level.
When you are independent, its pretty much up to you.
Some schools run multiple levels, promoting in a school-system localy, then, having some students tested at seminars and camps in the parent organization.
1 kenpo school I attended insisted all students be members of their parent organization. Another didn't, but said if you want a black belt, you must belong at the time of testing.
Some organizations revolk your rank if you don't keep paying dues.
Both the kenpo and arnis communities have used grading boards, with members from many organizations sitting on it and evaluating the testees.
The question arises when you start your own 'style'. Since you developed it, who knows it better than you? Some will say those folks are the biggest frauds. I think they are both right and wrong.
The 'dabbler' who holds and held no rank, has minimal formal training, and little time in, but then starts his own style, is probably a fraud.
The guy who worked through an art or 3, earned rank, then goes off on his own, I don't think he is a fraud. I doubt very highly that anyone would call Bruce Lee, Ed Parker, Remy Presas, Prof. Vee and many other notables frauds. They all had legit backgrounds, but went on to add their own ideas to the mix.
Its a matter of perspective, I think, and on where you draw the line.
:asian: