The National Stock Exchange (NSE) on October 14, 2022, issued a circular that all Trading Members/ Clearing Members are required to carry-out complete Internal Audit for the half year ended September 30, 2022, and submit the report electronically through the Inspection module in the Member Portal. The Audit shall be conducted only by an independent qualified Chartered Accountant or Company Secretary or Cost & Management Accountant who is in practice and does not have any interest in or relation with the Member other than the Internal Audit assignment.
It is stated that the due date to submit the Internal Audit Report is within two months from the end of the half year i.e., for the half year ended September 30, 2022, the due date is November 30, 2022. The penalties/disciplinary actions for late/non-submission of the Internal Audit Report and non-compliances observed in the Internal Audit Report will be applicable as per the Exchange Circular NSE/INSP/53530 dated September 02, 2022, or any other relevant circular that may be issued by the Exchange from time to time.
It is further stated the trading member shall submit an undertaking to Exchange on half yearly basis along with an Internal Audit Report confirming that the penalty levied by clearing corporations on account of “short/non-collection of upfront margins from clients” is not being passed on to respective clients under any circumstances with reference to Exchange circular NSE/INSP/52711 dated June 23, 2022.
The trading member must present assurance to the exchange every six months along with an internal audit report stating that under no circumstances is the fine imposed by clearing corporations for "short/non-collection of upfront margins from clients" being passed on to the corresponding clients. As a result, the option to submit the same has been made available in the member portal's "Internal Audit Tab." The owner, partner, or authorised director of the company must digitally sign the undertaking that the member has filed. If the member has not provided the undertaking, the internal auditor will not be allowed to submit the internal audit report with reference to Exchange circular NSE/INSP/52711 dated June 23, 2022.
The following eligibility criteria are qualified to conduct the Internal Audit of the Trading Members:
• The Auditor/Audit firm or at least one of the partners should have a minimum of 5 years of experience in carrying out audits.
• The Auditor/ Audit firm is not debarred or restrained from issuing any certificate by ICAI, ICSI, ICMAI, RBI, SEBI, or by other regulators/law enforcement agencies.
• Auditor and/or its employee or partner signing the Internal Audit Report shall have a valid NISMSeries-XIV: Internal Auditors for Stockbrokers Certification or NISM Series III-A: Securities Intermediaries Compliance Certification or ICAI Certificate Course on Financial Markets and Securities Laws or any other equivalent examination.
The following are advised to Internal Auditors while carrying out the Audit:
• For the purpose of verification, Exchange has made the information provided by members for Enhanced Supervision, a List of Bank/Demat Accounts reported, and other weekly submissions, such as client-level cash & cash equivalent balances, bank account balances, and Holding Statement for the sample dates/period, available in the relevant Auditor's login.
• To enable the auditor to choose samples in accordance with the sampling criteria 1, 2, and 3 defined in Annexure III, details regarding sample dates/clients applicable for certain checklist points have been made available in the appropriate Auditor's login. Before beginning the audit, auditors are advised to complete their registration with members and retrieve the data and samples from their separate logins.
• The samples for parameters/criteria other than those listed above must be selected using the "methodology for sample selection" outlined in Annexure III, and the necessary data can be obtained from the member.
• The auditor is responsible for verifying and certifying the "Inventory of Assets" data submitted by members on the member portal (ENIT-INV-ASSETS-AUDITOR). The auditor must certify the Internal Audit Report before it can be submitted. Annexure VI contains further instructions in this regard.
Annexure I specifies the Internal Audit Certificate.
Annexure II specifies the Format of the Internal Audit Report.
Annexure III specifies the Guidelines on sample selection & other points to be noted.
Annexure IV specifies the List of indicative processes & references of Exchange/SEBI circulars.
Annexure V specifies the Detailed manual for submission of the Internal Audit Report & Troubleshooters.
Annexure VI specifies the Manual to submit/certify “Inventory of Assets” data.
[Circular No: 77/2022]
