Capital market regulator Sebi has proposed an online monitoring mechanism for system audits of stock brokers to cut down on technical glitches.
In a consultation paper released on Tuesday for public comments, Sebi said it aims to address gaps in the current audit processes, including poor quality, lack of physical site visits by auditors, and inadequate sampling techniques.
The proposed framework will require stock exchanges to develop a web-based portal to oversee the entire audit process. This includes monitoring the appointment of auditors, their physical visits to stock brokers’ premises, and the submission of audit evidence.
The online mechanism will ensure that the auditor has verified the required IT infrastructure personally and also the systems before submitting the audit report.
It is also proposed that geo-location tracking of auditors and secure login systems will ensure the integrity of the audit process.
According to the regulator, these measures will help strengthen the quality and reliability of system audits, which are critical for identifying risks associated with the extensive use of technology in trading systems.
Some of the key points raised in the paper include stricter eligibility criteria for auditors with a focus on individual qualifications rather than just the audit firm’s credentials.
Auditors will also be mandated to submit standardised audit reports and action-taken reports (ATRs) through the online platform. For high-risk brokers, such as those offering algorithmic trading, exchanges will conduct surprise visits to ensure compliance and authenticity of audit findings.
The paper comes against the backdrop of increasing complexities in trading systems and heightened risks from technological glitches.
The proposals seek to align audit practices with these challenges, ensuring a more robust regulatory environment. The public can send their comments on the paper until December 26.
