The Securities and Exchange Board of India (SEBI) introduced a detailed framework on Thursday (20 June, 2024) for system audits of Professional Clearing Members (PCMs).
This new directive requires PCMs to report all major and minor non-compliances found during these audits.
The new framework will be implemented immediately, with the first audit scheduled for the financial year 2024. This initiative is part of SEBI’s ongoing efforts to maintain a strong, transparent market infrastructure that complies with regulatory standards.
Under this framework, all clearing corporations (CCs) must work together to create a standardized penalty structure.
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In a circular, SEBI said, “All CCs are jointly advised to devise the appropriate uniform penalty structure for PCMs to ensure that system audit reports are submitted to them within defined timelines as well as audit observations are closed within defined timelines.”
Audit Standards and Auditor Selection
According to SEBI’s circular, audits of Professional Clearing Members (PCMs) will follow specific norms and guidelines set by SEBI or clearing corporations (CCs).
Auditors will be chosen based on these standards, and their appointments must be approved by the PCM’s governing board.
Auditors can conduct up to three consecutive audits for a PCM but must wait for a two-year cooling-off period before being eligible for reappointment.
Maintenance and Reporting Requirements
Under the new framework, Professional Clearing Members (PCMs) must keep an updated list of directives from SEBI and clearing corporations (CCs) related to technology and compliance.
They are required to report any major or minor non-compliances found during system audits and highlight unresolved issues from current or previous audits. This approach ensures continuous attention to compliance issues.
The system audit report, which details adherence to SEBI and CC guidelines and includes exceptional observations, must be reviewed by the PCM’s governing board.
After this review, the report, along with management comments, must be submitted to the CCs within one month of completing the audit.
Also Read: SEBI Modifies IPO Call Auction Rules, Adds Surveillance Measures for Stock Exchanges
Broader Regulatory Framework
This announcement builds on SEBI’s October 2023 directive, which established a system audit framework for stock brokers and trading members.
The implementation of these measures shows SEBI’s commitment to maintaining market integrity through better regulation and technology.
By requiring regular audits and reporting, SEBI aims to create a more transparent, efficient, and trustworthy market environment that benefits everyone involved.
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Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before investing.
