Enhanced Governance Obligations for QSBs — Board Committees You Now Need
QSBs must establish a robust governance structure with mandatory board committees overseeing audit, risk management, IT, and cybersecurity. The Board of Directors (BoD) or analogous body of QSBs must exercise oversight over incidents and vulnerabilities impacting the functioning of the QSB in the securities market and investor protection. This article explains the governance obligations, the role of each committee, and the annual reporting requirements.
The Regulatory Basis
The enhanced governance obligations for QSBs are specified in SEBI Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/24 dated February 06, 2023.
Core Governance Requirements
Board Oversight
The Board of Directors (BoD) or analogous body of QSBs shall exercise oversight over incidents/vulnerabilities having an impact on the functioning of the QSB in the securities market and investor protection, including data security breaches that can affect investor data.
Mandatory Board Committees
QSBs shall have committees of the Board of Directors (BoD) or analogous body such as:
- Audit Committee (for listed QSBs).
- Nomination and Remuneration Committee.
- Risk Management Committee.
- Information Technology (IT) Committee.
- Cybersecurity Committee.
- Any other committee as mandated by SEBI from time to time.
Role of Each Committee
Audit Committee
The Chief Financial Officer (CFO) or analogous person of the QSB must submit to the audit committee details in respect of:
- Financial status of the entity.
- Disclosure of any related party transactions.
- Inter-corporate loans and investments.
- Internal financial controls and risk management systems.
- Compliance with listing and other legal requirements relating to financial statements.
- Adherence to regulatory provisions.
Nomination and Remuneration Committee
QSBs shall, before appointing directors, Key Managerial Personnel (KMP) and other employees, consult the nomination and remuneration committee with regard to their appointment, tenure and remuneration.
Risk Management Committee
QSBs shall seek inputs from the risk management committee while framing policies relating to risk management of the organization.
Information Technology (IT) Committee
QSBs shall seek inputs from the IT committee while framing policies relating to IT infrastructure and scalability of operations.
Cybersecurity Committee
QSBs shall seek inputs from the cybersecurity committee while establishing a robust cyber security framework and augmenting IT infrastructure and scalability of operations.
Annual Reporting Requirement
QSBs shall submit an annual report to the stock exchanges regarding:
- The observations of the committees of BOD or analogous body.
- Corrective action taken by the QSB.
- Measures taken to prevent recurrence of such incidents.
Key Personnel Responsibilities
- Chief Financial Officer (CFO): Must submit financial and compliance details to the audit committee.
- Key Managerial Personnel (KMP): Appointments and tenure must be approved by the nomination and remuneration committee.
- Committee Members: Must provide inputs to the respective committees for policy formulation.
How We Help
At Anuj Desai & Associates, we help QSBs establish the required board committees, draft committee charters, and ensure compliance with the enhanced governance obligations. If you are a QSB or are considering voluntary QSB designation, reach out to our regulatory compliance desk.