It's not specified anywhere for OCs only, so if someone came to me with the idea of bringing in Batman to this small town urban fantasy group, for a silly example, i wouldn't reject Bruce Wayne simply because he's a canon character from a fandom. In fact, when circumstances surrounding the character's creation changed, what I told the applicant was they could base their character on info from Supernatural.
The situation in this: The applicant has lifted all of the canon's personality and the first three paragraphs of their history almost word for word with the exception of a couple of name changes for their own character. As I was reading the application I was thinking, This sounds an awful lot like So-and-So and, sure enough, imagine my surprise when I looked up the character's wiki page. Were I not familiar with the fandom, I most likely would not have caught/figured out what they'd done.
When asked if their OC was modeled after the canon character, they did not deny that the canon character was the basis for their OC. So I asked the applicant to make an OOC addendum/note that information was taken from the canon character's wiki page and link back to it. They seemed fine with it and said it wouldn't be a problem. However, considering that would take all of five minutes or less and it's been 48 hours or so since I've made that request, I've become increasingly uncomfortable and upset and losing my objectivity of the situation because I know the applicant is capable of writing original content—Two other characters of theirs I'm familiar with is proof of that.
At this point, I've posted a custom to the mod journal to discuss and have informed the applicant that creating an OC based on and inspired by a canon character is completely different than copying and that the latter is unacceptable. From this point forward they can either rewrite the application with original content or play the canon and pick a point to diverge from. Otherwise, I'll have to reject the application. I have yet to hear back from the applicant (which I'm not surprised since it's the middle of the weekday, so they're probably working).