New Delhi, Markets regulator Sebi on Thursday laid out the framework for system audit of professional clearing members (PCMs), directing them to submit information regarding major and minor non-compliances in such systems.
The Securities and Exchange Board of India (SEBI) said in a circular that the framework will come into effect with immediate effect and the first audit will be conducted for fiscal year 2024.
All Clearing Corporations (CCs) have been directed to jointly establish a uniform penalty structure for PCMs to ensure timely submission of system audit reports and closure of audit observations.
SEBI in its circular said the audit of PCMs will be conducted as per the norms, terms of reference (TOR) and guidelines issued by SEBI or the Clearing Corporation (CC).
They will select the auditors based on the prescribed auditor selection criteria and TOR and the Governing Board of PCM will approve the appointment of the auditors.
An auditor can conduct a maximum of three consecutive audits.
However, such auditor shall be eligible for re-appointment after a cooling-off period of two years.
The regulator said PCMs should maintain a list of relevant SEBI and CC directions regarding technology and compliance.
They should report major and minor non-compliances found during system audits and highlight any unresolved issues from current and previous audits.
The system audit report including compliance with SEBI/CC guidelines and extraordinary observation format along with the compliance status of the previous year's observations should be reviewed by the Governing Board of the PCM.
The report, along with management comments, should be sent to the CC within one month of completion of the audit.
In October 2023, SEBI outlined the framework for system audit of stock brokers and trading members.
The Securities and Exchange Board of India (SEBI) said in a circular that the framework will come into effect with immediate effect and the first audit will be conducted for fiscal year 2024.
All Clearing Corporations (CCs) have been directed to jointly establish a uniform penalty structure for PCMs to ensure timely submission of system audit reports and closure of audit observations.
SEBI in its circular said the audit of PCMs will be conducted as per the norms, terms of reference (TOR) and guidelines issued by SEBI or the Clearing Corporation (CC).
They will select the auditors based on the prescribed auditor selection criteria and TOR and the Governing Board of PCM will approve the appointment of the auditors.
An auditor can conduct a maximum of three consecutive audits.
However, such auditor shall be eligible for re-appointment after a cooling-off period of two years.
The regulator said PCMs should maintain a list of relevant SEBI and CC directions regarding technology and compliance.
They should report major and minor non-compliances found during system audits and highlight any unresolved issues from current and previous audits.
The system audit report including compliance with SEBI/CC guidelines and extraordinary observation format along with the compliance status of the previous year's observations should be reviewed by the Governing Board of the PCM.
The report, along with management comments, should be sent to the CC within one month of completion of the audit.
In October 2023, SEBI outlined the framework for system audit of stock brokers and trading members.
