Description

SEBI mandates joint annual inspections by MIIs instead of separate inspections to ease regulatory burden on brokers and improve supervision effectiveness.

Summary

SEBI has introduced a comprehensive policy for joint annual inspections by Market Infrastructure Institutions (MIIs) to replace the current system of separate inspections. This change aims to reduce regulatory burden on intermediaries and improve supervision effectiveness through coordinated inspections and information sharing.

Key Points

  • Joint annual inspections will replace separate inspections by each MII
  • All segments including DP operations and clearing activities will be inspected simultaneously
  • New information sharing mechanism established between MIIs
  • Revised criteria for entity selection based on risk factors
  • Top 25 entities in penalty payments, investor complaints, and high-risk scores to be inspected annually
  • Other entities to be inspected at least once every three years
  • Professional Clearing Members to be inspected jointly every two years

Regulatory Changes

  • Joint Inspection Framework: Entities selected for annual inspections will be inspected jointly by all relevant MIIs instead of separate visits
  • Information Sharing: MIIs must establish mechanisms to share inspection observations for entities with multiple registrations
  • Risk-Based Selection: New criteria focusing on high-penalty entities, complaint-heavy brokers, and high-risk score entities
  • Inspection Frequency: Standard entities inspected once every three years, Professional Clearing Members every two years

Compliance Requirements

  • Stock exchanges, depositories, and clearing corporations must coordinate joint inspections
  • MIIs must implement information sharing systems for inspection observations
  • Entities with multiple registrations subject to consolidated inspection approach
  • MIIs retain authority for special purpose inspections based on specific triggers
  • Exemptions apply to entities inspected in preceding two years or with no trading activity

Important Dates

  • Circular Date: August 07, 2025
  • Implementation: Immediate effect for new inspection framework
  • Inspection Cycle: Three-year cycle for standard entities, two-year cycle for Professional Clearing Members

Impact Assessment

Operational Impact: Significant reduction in regulatory burden on brokers and depositories through elimination of multiple separate inspections. This will reduce resource diversion and operational disruption.

Supervisory Impact: Enhanced effectiveness through coordinated inspections and information sharing, providing comprehensive view of entity operations across all segments.

Cost Impact: Reduced compliance costs for intermediaries due to streamlined inspection processes and fewer inspection visits.

Impact Justification

Major regulatory change affecting all stock brokers and depositories with streamlined inspection processes