This rule applies to just about every competitive fighting game out there.
I have yet to experience a fighting game tourney doesn’t use this rule.
Winner stays on with their character, loser has the option to pick a new one. **That’s the way it is. ** We like to keep things fair for both parties. How hard is that for anyone to to follow?
For 3D games (SC, Tekken, VF, DOA, etc.), just remember to set the matches to 3 out of 5 rounds, since they end quickly. 2D games are mostly 2 out of 3.
If there are too much people for a tournament, you should use Single Elimination rules to save time. Otherwise, Double Elimination should be used. (Most of the time it’s Double Elimination anyway).
The only time when people should be able to pick whoever they want is when it’s casual play. That’s what it’s for. Otherwise you can’t take any tourney seriously if everyone is changing their characters left and right and nobody is enforcing the rules.