SEBI Issues Guidelines for Internal Audit and Audit Committee Structure of MIIs [Read Circular]
SEBI mandates annual independent internal audits and bars executive directors from audit committees to enhance governance in Market Infrastructure Institutions
SEBI – Internal Audit – SEBI Guidelines for MIIs – TAXSCAN
SEBI – Internal Audit – SEBI Guidelines for MIIs – TAXSCAN
The Securities and Exchange Board of India (SEBI) has released a new circular dated May 19, 2025, introducing comprehensive guidelines aimed at strengthening the internal audit framework and audit committee governance of Market Infrastructure Institutions (MIIs) which include stock exchanges, clearing corporations, and depositories.
Recognizing the important role MIIs play in ensuring a stable and transparent capital market ecosystem, SEBI has laid down norms that reinforce accountability, risk management, and regulatory compliance.
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Key Highlights:
A. Norms for Internal Audit Mechanism
1. Annual Internal Audit: MIIs must audit all functions such as critical operations, regulatory/compliance, business development at least once per financial year.
2. Independence: The auditor must be an independent audit firm, appointed based on a board-approved policy.
3. Audit Committee Oversight: The auditor reports only to the Audit Committee, not management.
4. Audit Scope: Covers all verticals and may be standardized via Industry Standards Forum.
5. Reporting Process:
- Draft observations go to Heads of Departments for comments.
- Final report (including dropped observations with rationale) goes to the Audit Committee.
6. Regular Updates: The auditor must brief the Audit Committee biannually (within 60 days from Sept and March ends), in absence of management.
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7. Timelines: Set by the Audit Committee.
B. Composition of the Audit Committee
- No Executive Directors (like MDs) are allowed as committee members.
- Auditors and Key Management Personnel (KMPs) may be heard during meetings but have no voting rights.
- KMPs (incl. MD) may attend meetings with Chairman’s permission but cannot vote.
Implementation
The circular is effective 90 days from the issuance (i.e., from August 17, 2025). MIIs must update bylaws, rules, and inform all stakeholders.
To Read the full text of the Order CLICK HERE
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