SEBI proposes online monitoring of system audit of stock brokers

SEBI has proposed a framework to help stock exchanges to do online monitoring of system audit of stock brokers.

In a consultation paper issued on December 3, the regulator said that this framework will make the auditor more responsible for the system audit, ensure that the auditor is physically visiting stock broker’s premises to check IT systems and not outsourcing the audit activity, and enable auditors to submit audit evidences and audit report through web portal for speedy processing, to cover technical glitch related aspects in system audit.

A risk-based system audit of stock brokers has been in place since November 2013. The new provisions will be applicable to all the stock brokers who would be required to carry out the system audit as per the SEBI circular dated November 6, 2013.

Enhanced responsibility

The proposed framework ensures that only the authorised auditor or the authorised partners in the audit firm would carry out the audit by physical visits at the premises of the stock brokers which will be supervised by exchanges.

The framework will lay down enhanced obligation on system auditor to verify certain key technology aspects. Stock exchanges will 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).

“The proposed online mechanism will ensure that the auditor has verified the required IT infrastructure personally and verified the systems before submitting the audit report. It will enhance reach of the exchanges to identify the deficiencies in the audit process before the completion of audit and also enable them to interact with the auditor during the audit process,” the regulator said on Tuesday.