BSE Notice: Internal Audit Report Submission for Half Year Ended March 31, 2026 via BEFS

Description

BSE directs internal auditors of member firms to submit the Internal Audit Report for half year ended March 31, 2026 through BEFS by May 31, 2026, with key changes in sampling methodology and new disclosure requirements.

Summary

BSE has issued a follow-up notice (continuation of Notice No. 20260407-22 dated April 7, 2026) requiring all member firms to submit their Internal Audit Report for the half year ended March 31, 2026 through the BEFS (BSE Electronic Filing System) portal by May 31, 2026. The notice highlights significant changes in sampling criteria, mandatory non-compliance reporting fields, and expanded audit scope incorporating items previously covered under Risk Based Supervision.

Key Points

• Internal Audit Reports must be submitted electronically via BEFS on or before May 31, 2026
• Changes in sampling criterion and methodology compared to the previous half year — auditors must review Annexure III and Annexure III A before initiating the audit
• For each “Not complied” observation, auditors must mandatorily provide: number of instances verified, number of non-compliant instances, and amount/value involved
• If SEBI has conducted an inspection and issued corrective measure letters, the internal auditor must verify submission of the “Compliance Status Report on Corrective Actions Taken” and submit Annexure VI to enforcement@bseindia.com
• Annexure VI submission is mandatory for audit report completion where applicable
• For members with action letters issued during April 2025–September 2025 for material non-compliances, samples prescribed in Annexure III A must be selected
• Three new disclosures transferred from Risk Based Supervision to the Internal Audit Report effective this half year

Regulatory Changes

Effective from the half year ended March 31, 2026, the following items previously reported under Risk Based Supervision are now required to be reported in the Internal Audit Report:

1. Foreign subsidiaries/branches: Whether the member has any subsidiaries, branches, or representative offices in other countries and whether regulatory approval has been obtained
2. SEBI penalties for fraud: Number of non-compliance instances and penalties levied by SEBI on the member related to fraud — nature of frauds, amounts involved, whether client or member assets were involved, and actions taken against employees/APs in respect of broking operations
3. SEBI inspection details: Details of inspections undertaken by SEBI during the assessment period, adverse observations, and penalties/regulatory actions with respect to broking operations

Compliance Requirements

• Internal auditors must carefully review Annexure III (guidelines on sample selection) and Annexure III A (sample selection for material non-compliances from action letters) before beginning the audit
• Auditors must mandatorily populate quantitative fields for each non-compliance finding
• Where SEBI inspection corrective measures are applicable, Annexure VI must be submitted separately to enforcement@bseindia.com; the audit report is not considered complete without it
• Submissions must be made in electronic form only through the BEFS member portal

Annexures applicable for this submission:

• Annexure I: Internal Audit Certificate
• Annexure II: Format for Internal Audit Report (including for QSBs)
• Annexure III: Guidelines on sample selection and other points
• Annexure III A: Guidelines on sample selection for material non-compliances from action letters
• Annexure IV–VIII: Additional prescribed formats

Important Dates

Impact Assessment

This notice primarily affects BSE member firms (brokers/trading members) and their appointed internal auditors. The impact is medium in terms of market-wide disruption but high in terms of compliance burden for member back-offices and audit teams. Key impacts include:

• Increased audit workload due to expanded disclosure requirements migrated from Risk Based Supervision
• Stricter quantitative reporting obligations for non-compliance findings, reducing ambiguity in audit outcomes
• Members with prior SEBI inspections face additional verification and certification obligations (Annexure VI)
• Members with action letters from April–September 2025 must apply revised sampling norms under Annexure III A
• Failure to comply by May 31, 2026 may result in regulatory action by BSE/SEBI against the member firm

Impact Justification

Mandatory compliance deadline for all BSE member firms with structural changes to audit methodology and expanded disclosure requirements; non-submission implies regulatory risk.