| Circular | SEBI – Norms for Internal Audit Mechanism and Composition of the Audit Committee |
| Issuing Authority | SEBI |
| Issuing Date | March 17, 2025 |
| Key Enforcement Date | August 17, 2025 |
| Target Audience | Stock Exchanges, Clearing Corporations, Depositories, and Intermediaries |
| Purpose | To enhance governance, risk management, and accountability at Market Infrastructure Institutions (MIIs) by strengthening internal audit mechanisms and ensuring independence in audit committee structures. |
| Interpretation of Circular | Internal Audit Mechanism 1. Annual audits across 3 verticals: a. V1: Critical operations b. V2: Compliance, risk, investor grievances c. V3: Business development 2. Independent audit firms must: a. Report to the Audit Committee only b. Present findings bi-annually (by Sept 30 and Mar 31 + 60 days) c. Include dropped observations with justifications and departmental comments 3. Industry Standards Forum (ISF) may define standard Terms of Reference Audit Committee Composition a. Executive Directors/MDs not allowed as members b. Auditors and KMPs may attend but cannot vote c. KMPs require Chairman’s permission to attend meetings (non-voting) |
| Actions Required | 1. Institutions must comply with audit structure norms and reporting frequency 2. Internal governance teams should update policies and track MII compliance updates |
| Stakeholder | Impact |
|---|---|
| Jainam | Needs to align internal processes with MII audit protocols |
| Sub-Brokers | Must prepare for stricter audit and compliance responses |
| Clients | Indirect benefit through increased transparency and oversight in markets |
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