Markets regulator Sebi on Friday asked stock exchanges to develop web portals and create technology-based mechanisms to monitor and supervise the entire system audit lifecycle of a stock broker. The exchanges will monitor the process of carrying out a system audit of stock brokers through an online monitoring mechanism.
As part of the monitoring mechanism, exchanges would capture the geo-location of the auditor to ensure that physical visits are carried out by the auditor in the premises of the stock broker, Sebi said in a circular.
The web-based monitoring and supervision framework will be accessed by the auditor during the audit.
Exchanges are required to ensure that only the authorized auditor or person of the audit firm will have access to the web portal while conducting the audit through a secure OTP mechanism.
The proposed framework for monitoring and supervision of the system audit of the stock brokers through technology based measures will come into force for the audit period FY 2025-26. The web portal will be developed by stock exchanges within six months.
“Considering the complexities of technology and system used by stock brokers and emanating technology risk thereof, there is a need to further strengthen the system audit framework,” Sebi said.
Therefore, it has been decided to introduce technology-based mechanisms 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, it added.
Stock exchanges are mandated to submit summary of system audits of SBs/TM 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.
During every visit to the stock brokers’ premises, the auditor will log in to the web portal of the exchange from brokers’ location. The login into the web portal will be enabled only to authorized auditors through a secured mechanism such as OTP on the mobile device of the auditor.
Further, exchanges will conduct surprise visits to the premises of Qualified Stock Brokers (QSBs) to verify the audit being actually carried out by an authorized auditor or authorized persons of the audit firm. The exchanges may explore the possibilities of surprise visits to other brokers on a sample basis.
Also, the system auditor will carry out offsite assessments of the virtual assets provided by third-party vendors. On post audit requirements, stock exchanges will define standardized template for the system audit report in order to maintain uniformity of audit reports across stock brokers or trading members.
The standardised template of the audit report will be made available on the web portal which can be filled up by the auditor and submitted to SBs/TMs through the web portal.
The regulator has also put in place a framework for empanelment of system auditors, enhanced obligation on the system auditor and other due diligence by stock exchange.
This comprises stock exchanges will have to prescribe financial disincentive on brokers for instances where serious lacunas found in the system audit process and/or non-closure of observations found during the audit within defined timeline.
