SEBI proposes that stock exchanges do online monitoring of system audit of stock brokers

There is already a framework for the system audit of stock brokers, which has been in place since November 13.

The market regulator has proposed a framework to enable stock exchanges to do online monitoring and supervision of the periodic system audit of stock brokers.

In a consultation paper issued on December 3, Tuesday, the Securities and Exchange Board of India (SEBI) said that this framework is being proposed to enhance the quality of the audit; to improve accountability of the auditor; to ensure that the auditor is physically visiting the brokers' premises to check the IT systems and is not outsourcing this part of the audit activity; and to help audits to submit all their evidences and reports through a web portal for speedy processing.

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There is already a framework for the system audit of stock brokers, which has been in place since November 13. But this system has many gaps and faults, such as allowing for audits to be done without physical inspection, allowing for poor quality of audits with inadequate samples, allowing for audits to be conducted by non-qualified people, and the nonexistence of an independent source for verification and monitoring of the pre-audit, audit and post-audit processes.

Therefore an online monitoring and supervision mechanism of the system audit has been proposed.

According to the consultation paper, the proposed framework will enable exchanges to monitor and supervise the system audit through online web portal. The exchanges would be required to develop web portal for monitoring and supervising the process of system audit of stock brokers.

The paper also said that stock exchanges may be asked to lay down the eligibility criteria for empanelment of the system auditors with focus on qualification of auditors (rather than audit firm) and prescribe additional eligibility criteria for the system auditors of Qualified Stock Brokers (QSBs).