The Securities and Exchange Board of India (SEBI) has consistently worked towards strengthening regulatory frameworks to ensure transparency and efficiency in the stock markets. In its latest move, SEBI has introduced a technology-based mechanism to enhance the monitoring and supervision of system audits for stock brokers (SBs) and trading members (TMs).
Key Features of the New Framework
- Online Monitoring and Supervision of System Audits
Under the revised framework, stock exchanges are required to develop web-based platforms to oversee the entire system audit lifecycle of stock brokers. This will allow real-time tracking and ensure compliance with audit requirements.
Key aspects include:
Stock exchanges must monitor the execution of system audits via an online mechanism.
The online platform should capture the geo-location of auditors, confirming their physical presence at the broker’s premises.
Access to the monitoring framework must be secured through OTP-based authentication, ensuring that only authorized auditors or audit firm personnel can log in.
- Standardization of the System Audit Process and Reports
To ensure consistency in audits, SEBI has set guidelines for standardizing the system audit process.
Pre-Audit Requirements
Stock brokers must submit critical information before the audit begins, including:
- Auditor details (name, address, registration number, PAN, qualification, mobile number, etc.).
- Auditor appointment date, audit period, and appointment letter copy.
- Audit plan covering key IT systems and processes, along with proposed dates for physical inspections.
- Basic broker details (name, address, PAN, SEBI registration number, etc.).
Requirements During the Audit
To maintain audit integrity, SEBI has outlined specific measures for auditors during their review:
- Auditors must log in to the exchange’s web portal from the broker’s premises using a secure OTP mechanism.
- Geo-location tracking will verify that auditors have physically visited the broker’s office.
- The auditor must document key details, such as audit start and end dates, visit times, audit team members, individuals they interacted with, and IT systems examined.
Implications for Stock Brokers and Auditors
This initiative by SEBI reinforces its commitment to maintaining robust financial market infrastructure. The enhanced monitoring system ensures that audits are conducted transparently and effectively, reducing the risk of non-compliance. Stock brokers must adapt to these new requirements by integrating them into their compliance practices. Auditors, on the other hand, need to align their audit methodologies with SEBI’s prescribed standards to ensure smooth execution and reporting.
