Description

SEBI introduces joint annual inspection policy for brokers and DPs to reduce compliance burden and improve supervision effectiveness through coordinated inspections by MIIs.

Summary

SEBI has introduced a comprehensive policy for joint annual inspections by Market Infrastructure Institutions (MIIs) to reduce the compliance burden on stock brokers and depository participants. Instead of separate inspections by each MII, entities will now undergo coordinated joint inspections, with improved information sharing between regulators and revised selection criteria focusing on high-risk entities.

Key Points

  • Joint annual inspections will replace separate inspections by different MIIs (Stock Exchanges, Depositories, Clearing Corporations)
  • Information sharing mechanism established between MIIs for entities with multiple registrations
  • Revised selection criteria focuses on top 25 entities in three categories: high penalties, investor complaints, and high risk scores
  • Entities not in priority categories must be inspected at least once every three years
  • Professional Clearing Members to be inspected jointly by Clearing Corporations once every two years
  • Special purpose inspections can still be conducted based on specific triggers

Regulatory Changes

  • Joint Inspection Framework: Entities selected for annual inspection will be inspected for all segments jointly by all relevant MIIs
  • Information Sharing Protocol: MIIs must establish mechanisms to share inspection observations for entities with multiple registrations
  • Revised Selection Criteria: Focus on top 25 entities in three risk categories rather than blanket approach
  • Inspection Frequency: Standard entities inspected once every three years, Professional Clearing Members every two years

Compliance Requirements

  • For MIIs: Establish information sharing mechanisms with other MIIs
  • For MIIs: Coordinate joint inspections instead of conducting separate visits
  • For MIIs: Apply revised selection criteria for annual inspection programs
  • For Brokers/DPs: Prepare for comprehensive joint inspections covering all business segments
  • For Entities: Continue maintaining compliance standards across all registered activities

Important Dates

  • Effective Date: August 7, 2025 (circular issue date)
  • Implementation: To be implemented for upcoming annual inspection cycles

Impact Assessment

Positive Impact:

  • Significant reduction in compliance burden and operational disruption for brokers and DPs
  • More efficient resource utilization by both regulators and market participants
  • Comprehensive view of entity operations across all segments
  • Enhanced supervision effectiveness through information sharing

Operational Changes:

  • Reduced frequency of inspection visits for most entities
  • Streamlined inspection process covering all business activities simultaneously
  • Focus on high-risk entities requiring more attention
  • Better coordination between regulatory authorities

Impact Justification

Major regulatory change affecting all brokers and DPs, streamlining inspection process and reducing compliance burden