Technology-Based Monitoring of System Audits — SEBI's New Web Portal Framework

SEBI has introduced a technology-based mechanism for monitoring and supervising system audits of stock brokers through a web portal. The framework, introduced through SEBI Circular SEBI/HO/MIRSD/TPD/CIR/2025/10 dated January 31, 2025, requires stock exchanges to develop web portals for monitoring and supervising the process of system audit of stock brokers. This article explains the new framework, the features of the web portal, and what it means for brokers and auditors.

The Need for Technology-Based Monitoring

Based on audit reports analysed by exchanges as well as SEBI, the following risks / gaps were observed in the life cycle of the system audit of Stock brokers:

• System audits are carried out without the physical visits to the premises of stock brokers.
• The poor quality of the system audit due to inadequate samples and the types of the audit evidence relied upon.
• System audit is being conducted by non-qualified auditors.
• Nonexistence of independent source for verification, monitoring and supervision of the process of pre-audit, during the audit and the post-audit.

The Proposed Framework

Pre-Audit Requirements

Stock brokers are mandated to provide the following details through the web portal before the commencement of system audit:

• Details of audit members such as name, address, registration no., membership no., PAN, qualification, mobile number etc.
• Date of appointment of auditor, period of audit, copy of auditor appointment letter.
• Audit plan including proposed dates for physical visit by auditor, list of proposed coverage of IT systems/processes.
• Stock broker / Trading Member name, address, PAN, SEBI registration no. etc.

During the Audit

• During every visit to the stock broker's premises, auditor shall log in to the web portal of the exchange from the stock broker's location.
• The login into the web portal shall be enabled only to authorized auditor through secured mechanism such as OTP on mobile device of the auditor.
• Web portal shall capture the geo location of the auditor to confirm physical visits by the auditor.
• During audit, the auditor shall provide details through online web portal:
  • Audit start date, Date of visit, entry time, exit time, audit team members visited, person with whom interacted, details of systems covered, audit end date etc.
  • Evidence shall be collected by inspecting physical assets, records/documents, testing of relevant systems, system generated reports etc.
• Exchanges shall conduct surprise visits to the premises of Qualified Stock Brokers (QSBs) to verify the audit being actually carried out by authorized auditor or authorised persons of audit firm.

Post-Audit Requirements

• Stock Exchanges shall define a standardized template for the system audit report to maintain uniformity across stock brokers.
• The system audit report and the Action Taken Report (ATR) shall be submitted to Exchanges through web portal.
• The ATR shall be validated by the same auditor who has carried out the system audit.
• QSBs are mandated to submit the system audit report and the ATR to Stock Exchanges after approval from their respective Governing Board and Standing Committee on Technology (SCOT) or equivalent Technology Committee.

Benefits of the Framework

• Enhanced Quality: The framework seeks to enhance the quality of the audit and to make the auditor more responsible for the system audit.
• Physical Visits: It ensures that the auditor is physically visiting stock broker's premises to check IT systems and not outsourcing the audit activity.
• Digital Submissions: It enables auditors to submit audit evidences, audit report, ATR etc., through web portal for speedy processing.
• Technical Glitch Coverage: The framework covers technical glitch related aspects in system audit.
• Real-time Monitoring: The web-based portal would enable stock exchanges to oversee system audits in real-time, ensuring quality audits.

Key Features of the Web Portal

• Secure Access: Only the authorized auditor or person of the audit firm shall have access to the web portal while conducting audit through a secure OTP mechanism.
• Geo-Location Capture: The portal captures the geo location of the auditor to confirm physical visits.
• Standardised Templates: The portal provides standardised templates for audit reports to maintain uniformity.
• Comprehensive Monitoring: The portal monitors the entire system audit lifecycle of a stock broker.

How We Help

At Anuj Desai & Associates, we help stock brokers and auditors navigate the new technology-based monitoring framework, ensure compliance with the web portal requirements, and prepare for system audits. If you need assistance with system audit compliance under the new framework, reach out to our regulatory compliance desk.