+1 to banning outright canon characters only.
+1 to banning near derivative, recolors, and AU, but only in terms of commerce.
We do not need to be stifling people's personal creations, particularly those of (let's be very real here) younger people, just because someone else finds it distasteful. Does a person consider something to be an original character, distinct from an actual canon character, no matter how similar the look? Does it use only original and permitted, no stolen or official art? Then cool, sounds like there's nothing to worry over.
That said, if someone is selling or trading a design that is literally "Miku but purple" or "normal Pikachu but with a mohawk" or characters based directly off of MMO characters, that's a no go for me. But simply posting them with your own art (or screencaps) for personal use? Chill.
tldr, is the character literally named Naruto Uzumaki, or uses official art of him, or stolen fanart? Bad. Does the character resemble Naruto, but has a distinct backstory, original art, and some other defining element, no matter how close the resemblance, but the person has posted it for personal use and is not attempting to profit? Absolutely fine.