Relief to brokers as SEBI and exchanges scrap penalty-first model, roll out ATR-based system for compliance

Relief to brokers as exchanges and SEBI scrap penalty-first model, roll out ATR-based system for compliance

Exchanges have introduced overhauled compliance frameworks designed to streamline and expedite the closure of non-compliances reported in internal audit reports of brokers. Exchanges, after consultation with SEBI, have shifted towards a more structured and facilitative Action Taken Report (ATR) mechanism, instead of directly imposing penalty for non-compliances. The new process applies to audit reports for the period ending September 30, 2025 and onward.

ATR-based framework marks a departure from the traditional penalty-driven approach. The new framework introduces a defined compliance closure period, giving brokers two months after the audit submission due date to rectify issues and report corrective actions through the ATR. Under the existing regime, brokers submit internal audit reports every half year, by May 31 and November 30 as per SEBI circular.

Dhiraj Relli, MD&CEO, HDFC Securities said, ""It’s a welcome move and helps ease the burden of doing business. The intent is perfect, which is to give a chance to the intermediary to rectify things before levying any penalty for violation of observations in half half-yearly internal audit".  Reli further added, "Earlier, if any violations were observed in the half-yearly internal audit report, Exchanges used to levy penalties for those violations. Now, there is a change wherein Exchanges have allowed members to close violations within a 2-month time frame and report by way of a supplementary audit. If it is done, then no penalty. However, if the violation persists, a penalty will be levied".

Uttam Bagri, MD, BCB Brokerage Private Limited callls it a genuine Ease of Doing Business. He says, " By penalising accurate and truthful disclosures, the earlier framework had inadvertently created a perverse incentive to under-report. That anomaly has now been corrected. This is ease of doing business in its true letter and spirit.”

Another market participant said, “It is expected that brokers and their auditors will now acknowledge deficiencies openly instead of hiding them for fear of exchange penalties. SEBI and the exchanges have finally course-corrected.”

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For half-yearly periods ending March 31 and September 30, ATRs will now be due on July 31 and January 31, respectively. The ATR must be certified by the broker’s empanelled internal auditor and must cover at least one month of sample verification to confirm implementation of corrective measures. Any deficiencies detected in these reports triggered monetary penalties or disciplinary action, along with mandatory closure of observations as per SEBI’s circular.

Exchanges have issued circular on identical lines and said all submissions must be made electronically through the Inspection module of the member portal. NSE said that delays or failure to close audit findings will attract penalties as per its circular dated October 10, 2025.

BSE also unveiled its own revised ATR-centric framework, also effective for internal audit reports from the half year ending September 30, 2025. Similar to NSE, BSE requires brokers to close all non-compliances within two months from the audit submission due date and file a certified ATR by July 31 or January 31, depending on the audit cycle. The ATR must be verified by the broker’s empanelled internal auditor, and filings will be made exclusively through the BSE Electronic Filing System (BEFS).

Exchanges will issue detailed guidelines on the filing procedures.