SEBI mandates annual internal audits for all Market Infrastructure Institutions (MIIs) like stock exchanges, depositories, and clearing corporations. New rules enhance audit committee independence and governance, aiming to bolster transparency and oversight in India's financial markets.

With an aim to further strengthen governance at the stock exchanges, depositories and clearing corporations, described as market infrastructure institutions (MIIs), the Securities & Exchange Board of India (SEBI) on Monday revised guidelines for their internal audit mechanism.

Effective 90 days from Monday, every MII will be required to conduct an internal audit of all functions and activities at least once in a financial year, and the auditor should be an independent audit firm, a SEBI circular said.
The regulator also came out with new rules for the composition of audit committees, barring any executive director (including the managing director) to be a part of these panels. “The auditors of MII and the key management personnel (KMPs) shall have a right to be heard in the meetings of the audit committee when it considers the auditor’s report, but shall not have the right to vote. Wherever required, the KMPs (including the MD) can be invited to attend the meeting of the audit committee with permission of the chairman of the committee,” the circular said.

As per the new rules, MIIs should also have a policy for appointment of internal auditors approved by the audit committee. The governing board of the MII and approved auditors will only report to the audit committee.
Internal auditors’ observations should be sent to the respective heads of departments for their comments before sharing the final report with the audit committee, the circular said, adding that any observations dropped after clarifications from department heads shall also be included along with the rationale.

“The internal auditor of the MII shall appraise the audit committee, at least once in every six months within 60 days from end of September and March on critical issues concerning the MII, in the absence of the management,” it said.