SEBI mandates System Audit of Stock Brokers. Prescribes eligibility criteria for empanelment of auditors
SEBI vide Master Circular No. SEBI/HO/MRD2/PoD-2/CIR/P/2023/171 dated October 16, 2023 specified the comprehensive framework for System Audit for Stock Brokers (SBs)/Trading Members (TMs). SEBI has issued Circular No. SEBI/HO/MIRSD/TPD/CIR/2025/10 dated 31.01.2025 to introduce technology based mechanism to monitor and supervise the way in which the system audits are conducted and to prescribe eligibility criteria for the empanelment of auditors to ensure that audits are conducted in a stipulated manner.
The circular provides for monitoring and Supervision of System Audit process through online mechanism. It has been provided that Stock Exchanges shall develop web portal/web based platform and create technology based mechanisms to monitor and supervise the entire system audit lifecycle of a stock broker. As part of the monitoring mechanism, exchanges shall capture the geo location of the auditor to ensure that physical visit is carried out by auditor in the premises of the stock broker. Only the authorized auditor or person of the audit firm shall have access to the web portal while conducting audit through secure OTP mechanism.
The Stock Brokers have been mandated to provide following details through web portal before the commencement of system audit; Details of audit members such as name, address, registration no., membership no., PAN, qualification, mobile number etc., date of appointment of auditor, period of audit, copy of auditor appointment letter, audit plan including proposed dates for physical visit by auditor, list of proposed coverage of IT systems/processes, stock broker name, address, PAN, SEBI registration no. etc.
The Stock Exchanges shall conduct surprise visit to the premises of Qualified Stock Brokers (QSBs) to verify the audit being actually carried out by authorized auditor or authorize persons of audit firm.
The Circular in details provide for framework for empanelment of System Auditors. According to it,
Stock Exchanges shall empanel system auditors. The eligibility criteria for such empanelment shall be prescribed such as qualification, experience, minimum no. of partners required in an audit firm, minimum experience of conducting audits required for the auditor, minimum no. of skilled employees required etc. and norms for de-empanelment. The eligibility criteria shall emphasized on the experience and qualification of auditors rather than only on the experience of the audit firm. The list of the empaneled auditors shall be made available on the web portal
After carrying out the audits of three consecutive years, cooling off period of 2 years may be prescribed for reappointment of the auditor/audit firm. Monitoring of compliance of this provision shall be done by stock exchanges through web portal.
Further, Exchanges shall carry out due diligence to ensure authenticity of the system audit report. In addition to the same, the system audit report submitted by SB/TM shall be validated against the last submitted report.
Stock Exchanges have been mandated to submit summary of system audits of SBs/TMs to SEBI on half yearly basis giving details of stock brokers who have carried out the audit, action taken on non-compliant stock brokers, details of surprise visits carried and findings thereof, action taken on the auditor if any etc.
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