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SEBI directive on mandatory internal audit of stock-brokers

September 26, 2008
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1 min read

Last month, SEBI issued a circular to he various stock exchanges requiring mandatory internal audit for their stock-brokers / clearing members on a half-yearly basis.

The scope of the said audit includes the existence, scope and efficiency of the internal control system, compliance with the provisions of the SEBI Act, 1992, Securities Contracts (Regulation) Act, 1956, SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, circulars issued by SEBI, agreements, know-your-customer requirements, by-laws of the exchanges, and data security and insurance in respect of the operations of stock brokers / clearing members. The first such audit period will be from October 1, 2008 to March 31, 2009.

Following the SEBI circular, it is expected that the respective stock exchanges will come out with detailed guidelines in this regard. On the audit front, it is expected that the Institute of Chartered Accountants of India (ICAI) will also come up with guidance notes for its members for the conduct of audit.

This requirement has drawn mixed response because of the increased cost of compliance for the stock-broking community, which is facing a profit squeeze given the subdued capital market conditions and declining volumes.

On the other hand, the requirement provides an opportunity for strengthening controls and to reduce risks under volatile market conditions.

[Source: www.thehindubusinessline.com, Author: Suresh Surana (RSM Astute Group)]

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