Sebi Introduces New Internal Audit Norms For MIIs To Strengthen Governance Mechanisms

Sebi MII Update: Capital market regulator Securities Exchange Board of India (Sebi) has urged Market Infrastructure Institutions (MIIs) to operate efficiently and ensure transparency in their functions by tightening the norms for conducting internal audits. Notably, stock exchanges, depositories and clearing corporations are collectively called MIIs.

To help MIIs in identifying, assessing and mitigating risks, the market regulator has tightened the norms for internal audits according to a circular issued on May 19. Notably MIIs are governed by the provisions of Companies Act, 2013 and are required to mandatorily conduct Internal Audits. Sebi said that the new norms for conducting internal audits will come into effect 90 days after the circular was issued.

The market regulator has mandated that the internal audit of an MII has to be conducted by an independent audit firm. The market watchdog added that the appointment of the internal auditors has to be done via policy, which has been approved by the Audit Committee governing board of the MII. Once appointed the internal auditor has to report to the Audit Committee of the MII.

Once the audit is over, the internal auditor has to send observations to the respective Head of Departments (HoDs) for their comments, which will then be added to the report. The internal auditors have been asked to appraise the Audit Committee at a bi-annual frequency within 60 days from the end of September and March. Notably, the meeting between the committee and auditor has to take place in the absence of the management.

Sebi has also laid down rules regarding the composition of the audit committee and has mandated that it shall not include any executive director or including the Managing Director of the MII. Sebi said that the Key Management Personnel (KMPs) of the stock exchange, depository or clearing corporations will not be allowed to vote in the internal audit meetings.

The market regulator urged MIIs to take necessary steps for the implementation of the new internal audit norms. MIIs have also been advised to make the necessary amendments to implement the regulations.

Market participants are expected to benefit from the amended norms as MIIs provide vital capital market infrastructure for trading, clearing and settlement, and holding, transfer & record keeping of securities.