To further strengthen the governance mechanism at stock exchanges, clearing corporations and depositories, the Securities and Exchange Board of India (SEBI), on Monday, tightened the norms for internal audit and the composition of audit committees of market infrastructure institutions (MIIs).
“The audit committee of the MII shall not consist of any executive director (including the managing director) of the MII,” Sebi said in the revised norms.
Though a managing director will not be a part of the audit committee, the key management personnel (KMPs), including the (MD) can be invited to attend the meeting of the audit committee with permission of the chairman of the committee but will not have the right to vote.
The auditors of the MII and the KMPs will have a right to be heard in the meetings of the audit committee when it considers the auditor‘s report but they will not have the right to vote.
The audit committee’s role involves approval of related party transactions, scrutiny of financial statements, evaluation of internal financial controls and risk management systems.
The regulator has asked all MIIs to conduct an internal audit of all functions and activities such as critical operations, regulatory, compliance, risk management, investor grievances and business development at least once in a financial year.
The internal auditor of the MII will be an independent audit firm, which will report only to the audit committee.
The observations of the internal auditor will be sent to the respective head of departments (HoDs) for their comments in a time bound manner. After incorporating comments of the HoDs, the internal auditor will share the final report with the audit committee.
The internal auditor of the MII will appraise the audit committee, at least once in every six months within 60 days from the end of September and March, on critical issues concerning the MII, in the absence of the management.
