Description

SEBI implements joint annual inspections by Market Infrastructure Institutions (MIIs) with information sharing mechanism and revised selection criteria to reduce operational disruption for intermediaries.

Summary

SEBI has introduced a new policy for joint annual inspections by Market Infrastructure Institutions (MIIs) including stock exchanges, depositories, and clearing corporations. This replaces the current system of separate inspections by each MII to reduce operational burden on intermediaries and improve resource utilization.

Key Points

  • Joint annual inspections will be conducted by all relevant MIIs simultaneously instead of separate visits
  • 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 risk categories must be inspected regardless of last inspection date
  • Other entities to be inspected at least once every three years
  • Professional Clearing Members to be inspected jointly every two years
  • MIIs retain authority for special purpose inspections based on specific triggers

Regulatory Changes

  • Replacement of individual MII inspections with coordinated joint inspections
  • Implementation of mandatory information sharing between MIIs
  • Introduction of risk-based selection criteria for annual inspections
  • Standardization of inspection frequency requirements across different entity types

Compliance Requirements

  • Stock brokers, depositories, and clearing corporations must participate in joint inspection process
  • Entities must be available for inspection based on revised selection criteria
  • MIIs must establish information sharing mechanisms with other infrastructure institutions
  • High-risk entities (top 25 in penalty payments, complaints, or risk scores) subject to mandatory annual inspection
  • All other entities must undergo inspection at least once every three years

Important Dates

  • Circular dated: August 07, 2025
  • Implementation timeline not specified in the circular
  • Applies to entities not inspected in preceding two years or with trading activity in last two financial years

Impact Assessment

  • Positive operational impact for intermediaries through reduced inspection frequency and coordination
  • Improved regulatory oversight through better information sharing between MIIs
  • More targeted inspection approach focusing on high-risk entities
  • Potential cost savings for both regulators and regulated entities through optimized resource utilization
  • Enhanced supervision effectiveness through comprehensive view of entity operations across all segments

Impact Justification

Significant procedural change affecting all stock brokers and depositories but primarily operational efficiency improvement rather than market-moving regulation