The Securities and Exchange Board of India (SEBI) is set to tighten the leash on stock brokers through a new portal for audits — the onus of compliance will be on the exchanges.

The markets regulator on Friday, January 31, released a framework for monitoring and supervising the system audits of stock brokers. SEBI recommends a new portal be developed to ensure a more robust auditing process and mitigate technology-related risks.

How will this work?

This initiative is aimed at bolstering the integrity and security of stock trading practices amid growing technological complexities.

• Online Monitoring Mechanism: Stock exchanges are required to develop a web portal that will facilitate real-time monitoring of the system audit process. This platform will capture critical data, including the geo-location of auditors, ensuring that physical visits to broker premises are conducted as required.
• Standardisation of Audit Processes: The framework establishes a standardised process for conducting system audits, requiring brokers to provide detailed information about audit members, audit plans, and the systems to be covered. This aims to maintain uniformity and improve the quality of audits across the board.
• Empanelment of Auditors: SEBI will set eligibility criteria for the empanelment of system auditors, focusing on their qualifications and experience. This move seeks to ensure that only competent auditors are entrusted with reviewing stock brokers’ systems.
• Surprise Audits and Compliance Checks: To enhance accountability, stock exchanges will conduct surprise visits to verify the authenticity of audits. Additionally, system auditors will be required to report any technical glitches and remedial actions taken by brokers.
• Submission of Reports: The new guidelines mandate that system audit reports and action taken reports (ATRs) be submitted to stock exchanges through the web portal, ensuring transparency and traceability in the audit process.

When will this come into effect?

The framework is set to come into force for the audit period of the 2025-26 financial year, with stock exchanges required to develop the necessary web portal within six months.

With this, SEBI’s aim is to more effectively regulate the securities market, ensuring that stock brokers adhere to high standards of operational integrity and transparency.

Shares of BSE ended 1.4% higher on Friday at ₹5,315. The stock is down 13% from its peak of ₹6,133.