Description

SEBI mandates joint annual inspections by all MIIs instead of separate inspections to reduce compliance burden on brokers and improve supervision effectiveness.

Summary

SEBI has introduced a new policy for joint annual inspections of stock brokers and depository participants by Market Infrastructure Institutions (MIIs). This replaces the current system of separate inspections by each MII, aimed at reducing compliance burden and improving supervision effectiveness through coordinated inspections and information sharing.

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 criteria for selection of entities for annual inspection
  • Top 25 entities in high-penalty categories must be inspected regardless of last inspection date
  • Top 25 entities with highest investor complaints ratio must be inspected
  • Top 25 entities with high risk scores under Risk-Based Supervision must be inspected
  • Other entities to be inspected at least once every three years
  • Professional Clearing Members to be inspected jointly every two years

Regulatory Changes

  • Annual inspections will be conducted jointly by all relevant MIIs instead of separately
  • New risk-based criteria for entity selection including penalty history, complaint ratios, and risk scores
  • Inspection frequency changed from annual to risk-based with minimum three-year cycle
  • Entities inspected in preceding two years or with no trading activity in last two financial years may be exempted
  • MIIs retain authority for special purpose inspections based on specific triggers

Compliance Requirements

  • Stock Exchanges, Depositories, and Clearing Corporations must coordinate joint inspections
  • MIIs must establish information sharing mechanisms for inspection observations
  • Entities selected for inspection must accommodate joint inspection teams covering all segments
  • Professional Clearing Members subject to mandatory joint inspection every two years

Important Dates

  • Circular dated: August 07, 2025
  • Implementation: Immediate (no specific implementation date mentioned)
  • Inspection cycle: Minimum once every three years for non-high-risk entities
  • Professional Clearing Members: Once every two years

Impact Assessment

This policy significantly reduces operational disruption for brokers and intermediaries by eliminating multiple separate inspections. It optimizes resource utilization for both regulators and market participants while maintaining supervision quality through coordinated efforts and information sharing. The risk-based approach ensures high-risk entities receive appropriate attention while reducing burden on compliant entities.

Impact Justification

Fundamental change in inspection methodology affecting all brokers and market intermediaries with significant operational impact