SEBI on Monday tightened and standardised the norms on the internal audit mechanism at market infrastructure institutions (MIIs) “to further strengthen the governance mechanism at MIIs.”
The regulator has barred the managing directors from being part of audit committees, but allowed key managerial personnel (KMPs) to be invited to attend with the approval of the committee’s chairman without any voting rights. This move follows a request for a no-objection certificate from the MD of one of the MIIs to be part of its audit committee, according to sources.
Auditors of the MII and KMPs will have the right to be heard in audit committee meetings when the auditor’s report is under consideration, but not have voting rights. The new norms will come into effect after three months.
Stricter audits
The internal auditor must include all functions and activities of the MIIs, including all verticals such as critical operations, regulatory, compliance, risk management, investor grievances and business development. Further, in order to standardise the terms of reference of the internal auditor across similar MIIs, the MlIs may do so in consultation with the industry standards forum of MIIs.
The internal auditor must report only to the audit committee. The observations made by the internal auditor will have to be sent to the respective heads of departments for their comments to be included in the final report. The MIIs’ audit committee will prescribe the various internal audit timelines.
“The internal auditor of the MII shall appraise the audit committee, at least once in every six months within 60 days from the end of September and March, on critical issues concerning the MII, in the absence of the management,” SEBI said in a circular.
During inspections, SEBI found that certain substantial observations were not captured by the report of internal auditors of the MIIs. Thus, the need for strengthening the internal audit mechanism was felt, sources had said.
Published on May 19, 2025