SEBI tackles tech glitches with new online monitoring mechanism for system audit of brokers

Capital market regulator SEBI has proposed an online monitoring mechanism for system audit of stock brokers to reduce technical glitches.

In a consultation paper released on Tuesday for public comments, Sebi said it aims to address shortcomings in current audit processes, including poor quality, lack of physical site visits by auditors and inadequate sampling techniques.

The proposed framework will require stock exchanges to develop a web-based portal to oversee the entire audit process. This includes monitoring the appointment of auditors, their physical visits to the premises of stockbrokers and submission of audit evidence.

The online mechanism will ensure that the auditor has also personally verified the required IT infrastructure and systems before submitting the audit report.

It is also proposed that geo-location tracking of auditors and secure login systems will ensure the integrity of the audit process.

According to the regulator, these measures will help strengthen the quality and reliability of system audits, which are important for identifying risks associated with the widespread use of technology in trading systems.

Some of the key issues raised in the paper include stricter eligibility criteria for auditors, focusing on individual qualifications rather than just audit firm credentials.

Auditors will also be mandated to submit certified audit reports and action-taken reports (ATR) through an online platform. For high-risk brokers, such as those offering algorithmic trading, the exchange will conduct surprise visits to ensure compliance and honesty with audit findings.

This paper comes against the backdrop of growing complexities and increasing risks from technological disruptions in trading systems.

The proposals seek to align audit practices with these challenges, ensuring a stronger regulatory environment. The public can send their comments on the paper till December 26.