System Audit of Professional Clearing Members (PCMs)

SEBI/HO/MRD/TPD/P/CIR/2024/84 · 2024-06-20 · SEBI Market Regulation Department

Summary

This circular mandates Professional Clearing Members to conduct system audits according to a specified framework and Terms of Reference. It requires PCMs to submit audit reports, compliance lists, and information on non-compliances to their respective Clearing Corporations within defined timelines. The document establishes auditor selection norms, cooling-off periods, and penalties for non-compliance to ensure regulatory adherence. This section outlines the mandatory content and structure for IT system audit reports, requiring compliance with SEBI and Clearing Corporation directives. It specifies that auditors must provide qualitative inputs, tabulated non-compliance data, and point-wise evidence of adherence to Terms of Reference. The document further details the specific scope of the System Audit Program, covering IT resources, governance, business controls, and security measures. This section outlines specific audit requirements for IT support, human resources, vendor management, and email systems. It includes Annexure 3 detailing the format for monitoring compliance with SEBI and Clearing Corporation directives. Additionally, Annexure 4 provides exception observation reporting

Text

PCMs are required to conduct System Audit as per the framework enclosed as Annexure 1 and Terms of Reference (TOR) enclosed as Annexure 2. PCMs are also required to maintain a list of all the relevant SEBI and CCs circulars/ directions/ advices, etc. pertaining to technology and compliance thereof, as per format enclosed as Annexure 3 and the same shall be included under the scope of System Audit.

PCMs are also required to submit information with regard to exceptional major Non-Compliances (NCs)/ minor NCs observed in the System Audit as per format enclosed as Annexure 4 and are required to categorically highlight those observations/NCs/suggestions pointed out in the System Audit (current and previous) which remain open.

The Systems Audit report including compliance with SEBI/CCs circulars/guidelines and exceptional observation format along with compliance status of previous year observations shall be placed before the Governing Board of the PCM and then the report along with the comments of the Management of the PCM shall be communicated to CCs within one month of completion of audit.

All CCs are jointly advised to devise the appropriate uniform penalty structure for PCMs to ensure that system audit reports are submitted to them within defined timelines as well as audit observations are closed within defined timelines.

The provisions of the Circular shall come into force with immediate effect. The first audit shall be conducted for FY 2023-24.

This circular is being issued in exercise of the powers conferred by Section 11(1) of Securities and Exchange Board of India Act, 1992 to protect the interest of investors in securities market and to promote the development of, and to regulate the securities market.

The Audit shall be conducted according to the Norms, Terms of Reference (TOR) and Guidelines issued by SEBI/Clearing Corporations(CCs). Professional Clearing Members(PCMs) shall select the Auditors based on the prescribed Auditor Selection Norms and TOR. The Governing Board of the PCMs shall approve the appointment of the Auditors.

An Auditor can perform a maximum of 3 successive audits. However, such auditor shall be eligible for re-appointment after a cooling-off period of two years.

Further, during the cooling-off period, the incoming auditor may not include: i. Any firm that has common partner(s) with the outgoing audit firm; and ii. Any associate / affiliate firm(s) of the outgoing audit firm which are under the same network of audit firms wherein the term "same network" includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control.

The audit shall be conducted for each financial year. Further, the audit shall be completed within 2 months from the end of the audit period. The Audit report shall be submitted to CCs within one month of completion of the Audit, after approval of the Governing Board (or equivalent governance structure as applicable to the entity). PCMs, who have conducted clearing activities during the audit period are liable for submission of the System Audit report.

In the Audit report, the Auditor shall include its comments on whether the areas covered in the Audit are in compliance with the norms/ directions/ advices issued by SEBI, Clearing Corporation, internal policy of the PCM, etc. Further, the Audit report shall also include specific non- compliances (NCs), observations for minor deviations and suggestions for improvement. The audit report shall take previous audit reports into consideration and cover any open items therein. The Auditor should indicate if a follow-on audit is required to review the status of NCs.

For each of the NCs/ observations and suggestions made by the Auditor, specific corrective action as deemed fit may be taken by the PCM. The management of the PCM shall provide its comments on the NCs, observations and suggestions made by the Auditor, corrective actions taken or proposed to be taken along with time-line for such corrective actions.

Source: SecMarx — System Audit of Professional Clearing Members (PCMs). Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.