Stock Brokers’ Audit System On Sebi Radar

This online monitoring mechanism will enhance the reach of the exchanges to identify the deficiencies in the audit process before the completion of an audit and also enable them to interact with the auditor during the audit process and will also ensure stringent compliance with regulatory standards

New Delhi:Capital markets regulator Sebi has proposed an online monitoring and supervision framework for system audits of stock brokers aimed to enhance the quality and accountability of audits. The Securities and Exchange Board of India (Sebi) has invited public comments on the proposed draft framework by December 26.

This online monitoring mechanism will enhance the reach of the exchanges to identify the defi-ciencies in the audit process before the completion of an audit and also enable them to interact with the auditor during the audit process and will also ensure stringent compliance with regulato-ry standards. Under the proposed framework, Sebi suggests introducing a web-based portal through which stock exchanges can oversee the audit lifecycle. The move follows observations of deficiencies in current practices, including the absence of physical audits at stock brokers’ prem-ises, reliance on inadequate evidence, and the involvement of unqualified auditors.

“The pro-posed monitoring and supervision framework for the system audit of stock brokers shall include provisions for online mechanism to be developed by stock exchanges for conducting system au-dits, monitoring of entire audit process through the said online mechanism, enhanced requirement for auditor, empanelment provisions, etc,” the regulator said.

In a consultation paper issued on December 17, Sebi outlined the creation of a technology-driven platform that mandates physical inspections by authorised auditors. The platform will capture geo-location data during audits to confirm on-site visits and enable secure interactions via OTP mechanisms. Further, the exchanges will have complete oversight of audit activities, from appointment to final report submissions, ensuring adherence to regulatory expectations. Stock exchanges will also be tasked with developing standardised templates for audit reports, which must detail areas such as IT infrastructure, critical systems, and audit methodologies.

The framework also imposes stricter eligibility criteria for auditors, emphasising their qualifica-tions and independence to prevent conflicts of interest. Additionally, Qualified Stock Brokers (QSBs) will face enhanced scrutiny. They must submit audit reports and action-taken reports (ATRs) approved by their governing boards. Sebi also proposed random inspections to verify compliance and address any discrepancies identified in audits.