SEBI Introduces Joint Annual Inspection Framework to Enhance Ease of Doing Business for Market Intermediaries [Read Circular]

The Securities and Exchange Board of India (SEBI) issued circular no. SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/113, dated August 7, 2025, introducing the Joint Annual Inspection Framework to streamline the inspection process for stock brokers, depository participants (DPs), and clearing members.

Currently, brokers and DPs are subject to separate annual inspections by various Market Infrastructure Institutions (MIIs), which include Stock Exchanges, Depositories, and Clearing Corporations. This results in multiple inspection visits, repetitive audits, and significant disruption to daily business operations.

According to the new circular, SEBI has mandated that all MIIs conduct joint inspections of entities that are registered across multiple platforms. For example, if a stockbroker is also registered as a DP and carries out clearing operations, all these functions will now be inspected together in a single coordinated audit by the concerned MIIs.

Key Features of the New Policy

1. Joint Inspections: Instead of multiple inspections by different MIIs, a single joint annual inspection will now be conducted for each selected entity, covering all their registered operations.
2. Information Sharing Among MIIs: MIIs are required to share inspection findings with each other to improve supervision and avoid duplication.
3. Revised Inspection Criteria: The new policy outlines a risk-based approach to determine which entities must be inspected every year:
4. Top 25 entities with the highest penalties for serious compliance issues
5. Top 25 entities with the highest number of investor complaints or arbitration cases
6. Top 25 entities identified as high-risk under Risk-Based Supervision
7. Other entities will be inspected at least once in three years, unless they have already been inspected in the last two years or have not traded in the last two financial years.
8. Special Inspections Still Permitted: MIIs retain the power to carry out special or limited-purpose inspections if there are red flags, such as unusual trading patterns or complaints from investors or regulatory authorities.
9. Implementation Roadmap:
10. MIIs must jointly develop a Standard Operating Procedure (SOP) by November 1, 2025, covering inspection criteria, information sharing, and appointment of a Lead MII for enforcement actions.
11. The new joint inspection framework will become effective from December 1, 2025.
12. Other Changes:
13. The earlier SEBI circular dated June 30, 2017, has been rescinded.
14. Relevant provisions of the Master Circular for Stock Brokers dated June 17, 2025, have been amended to align with this new policy.

SEBI clarified that Qualified Stock Brokers (QSBs) will continue to follow the separate guidelines issued on February 6, 2023, regarding enhanced obligations.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates