Description

SEBI revises annual inspection policy to enable joint inspections by all Market Infrastructure Institutions instead of separate inspections, aimed at easing compliance burden on brokers and depositories.

Summary

SEBI has introduced a comprehensive policy reform for annual inspections of market intermediaries, replacing separate inspections by individual Market Infrastructure Institutions (MIIs) with joint inspections. This change aims to reduce compliance burden on stock brokers and depository participants while improving supervisory effectiveness through information sharing mechanisms.

Key Points

  • Joint annual inspections will be conducted by all MIIs simultaneously instead of separate inspections
  • Information sharing mechanism established between MIIs for entities with multiple registrations
  • Revised selection criteria focusing on high-risk entities based on penalties, complaints, and risk scores
  • Top 25 entities in three categories will be inspected regardless of last inspection date
  • Entities not in high-risk categories will 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 inspection will be inspected jointly by all relevant exchanges, depositories, and clearing corporations
  • Information Sharing Protocol: MIIs must establish mechanisms to share inspection observations for entities with multiple registrations
  • Risk-Based Selection Criteria: Three new categories for mandatory inspection - high penalty payers, high complaint entities, and high-risk score entities (top 25 each)
  • 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 inspections
  • For MIIs: Apply new risk-based selection criteria for annual inspections
  • For Brokers/DPs: Prepare for comprehensive joint inspections covering all registered activities
  • For Professional Clearing Members: Undergo joint inspections by clearing corporations every two years

Important Dates

  • Circular Date: August 07, 2025
  • Implementation: Immediate (no specific implementation date mentioned)
  • Inspection Cycle: Three-year cycle for standard entities, two-year cycle for Professional Clearing Members

Impact Assessment

Positive Impacts:

  • Reduced disruption to broker operations through consolidated inspections
  • Optimized resource utilization for both regulators and intermediaries
  • Enhanced supervisory effectiveness through information sharing
  • Comprehensive view of entity operations across all segments

Operational Changes:

  • Brokers will face single comprehensive inspections instead of multiple separate ones
  • MIIs need to coordinate inspection schedules and share resources
  • Focus shifts to high-risk entities through refined selection criteria
  • Entities with clean compliance records benefit from reduced inspection frequency

Impact Justification

Significant operational change affecting all stock brokers, depositories and clearing corporations with revised inspection criteria and streamlined processes