Internal Audit of Trading Members-Update

Introduction and Purpose

This communication pertains to Exchange Circular No. NSE/INSP/56678 dated May 11, 2023, which sets forth the framework for the selection of auditors and outlines the eligibility criteria for conducting internal audits of trading members.

Revision of Eligibility Criteria

Following feedback from various member associations, the exchanges have collectively reviewed and revised the eligibility criteria for conducting internal audits of trading members. Please refer to Annexure A for the updated eligibility criteria.

Effective Date and Communication

These revised eligibility criteria will come into effect from the half year ended March 31, 2024, onwards. The applicability of auditor selection and guidance will be communicated separately through a forthcoming circular.

Continued Applicability of Previous Criteria

Please note that the eligibility criteria as prescribed by Exchange Circular NSE/INSP/54080 dated October 14, 2022, will continue to be applicable for the half year ended September 30, 2023. For reference, the eligibility criteria from the aforementioned circular is reiterated in Annexure B.

Member Action and Contact Information

We advise all members to take note of this circular and inform their internal auditors accordingly to ensure compliance with the updated requirements. If you have any clarifications or queries, please contact the respective regional offices listed below:
 

Annexure A: Revised Eligibility Criteria

To conduct internal audits of trading members, the auditors in the audit firm must meet the following criteria (effective from the half year ended March 2024 and onwards):
Auditor: The auditor in the audit firm should be an independent qualified Chartered Accountant, Company Secretary, or Cost and Management Accountant actively practicing with no conflict of interest.
Audit Firm Experience: The audit firm should have a minimum of 5 years’ experience in carrying out audits, preferably in securities markets.
Minimum Partners: The audit firm should have a minimum of two partners at all times.
Certificate Issuance: The audit firm should not be debarred or restrained from issuing any certificate by ICAI, ICSI, ICMAI, RBI, SEBI, or any other regulator/law enforcement agency.
Employee Certification: Any partner or employee of the audit firm conducting the internal audit must possess a valid NISM Series III-A: Securities Intermediaries Compliance Certification or a certification in “Financial Market & Securities Laws” provided by ICAI or an equivalent certification from another institution. Additionally, a partner/employee holding a valid NISM-Series-XIV: Internal Auditors for Stockbrokers certification is also eligible until the certification expires.
Additional Requirements for Qualified Stock Brokers (QSBs): Audit firms undertaking internal audits for QSBs should have a minimum of five partners, of which at least two should be full-time partners.

Annexure B: Eligibility Criteria for the Half Year Ended September 2023

For the half year ended September 2023, the eligibility criteria for auditors conducting internal audits of trading members are outlined below:
Independent Auditor: The audit must be conducted by an independent qualified Chartered Accountant, Company Secretary, or Cost & Management Accountant actively practicing without any interest or relation with the member other than the internal audit assignment.
Audit Experience: The auditor or audit firm, or at least one of the partners, should have a minimum of 5 years’ experience in carrying out audits.
Certificate Validity: The auditor or its employee/partner signing the internal audit report should possess a valid NISM Series XIV: Internal Auditors for Stockbrokers Certification or a NISM Series III-A: Securities Intermediaries Compliance Certification, an ICAI Certificate Course on Financial Markets and Securities Laws, or any equivalent examination approved by the relevant authorities.
By following these revised eligibility criteria and notifying your internal auditors, your organization can ensure compliance with the requirements set forth by the exchange. For any further inquiries, please reach out to the listed regional offices.

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