SEBI MII Internal Audit Norms – Annual Audit Mandate

Circular No. SEBI/HO/MRD/POD 3/P/CIR/2025/69, Dated 19.05.2025

1. Regulatory Snapshot

Circular No. SEBI/HO/MRD/POD 3/P/CIR/2025/69, dated 19 May 2025 introduces a unified framework for the Internal Audit Mechanism and for the composition & functioning of the Audit Committee at all Market Infrastructure Institutions (MIIs) — stock exchanges, clearing corporations and depositories. The circular becomes operative 90 days after issuance ( = 19 August 2025 ).

2. Audit Committee – New Composition Rules

1. No Executive Directors (incl. MD) can sit on the Audit Committee.
2. Auditors & Key Management Personnel (KMPs) – right to be heard when audit reports are considered, but no voting rights.
3. KMPs/MD may attend meetings only if invited by the Chair and still cannot vote.

3. Action Checklist for MIIs

1. Gap Analysis – Map current audit coverage against new Vertical-wise requirements.
2. Policy Drafting – Prepare appointment & rotation policy for independent auditors; get Audit Committee consent.
3. Committee Re-constitution – Replace any Executive Directors; ensure majority of Public Interest Directors remain.
4. Audit Charter & ToR – Align with ISF templates; embed HoD comment loop and drop-log.
5. System Changes – Build dashboards to track observation status and deadline adherence.
6. Training & Awareness – Brief HoDs on new response obligations and tightened timelines.

4. Strategic Takeaways

• Annual, wall-to-wall audits across three defined Verticals put every operational and regulatory process under yearly scrutiny.
• Exclusive reporting to the Audit Committee removes management filtering—heightening board-level insight into emerging risks.
• Excluded Executive Directors fortify independence and align MIIs with global best practice for critical financial infrastructure.
• Biannual, management-free briefings compel frank discussions on high-priority issues, boosting governance transparency.

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