Enhancing Accountability: Framework for Empanelment of Auditors for Internal Audit of Trading/CM

May 13, 2023

The National Stock Exchange of India (NSE) has introduced a framework for Empanelment of auditors to strengthen the internal audit process for Trading/Clearing Members. This framework aims to ensure compliance with regulatory requirements and improve the quality of internal audit reports. Auditors interested in conducting internal audits must meet specific eligibility criteria, including:

1. Auditor Independence: The auditor should be an independent qualified Chartered Accountant in practice without any conflict of interest.

2. Experience: The auditor or audit firm should have a minimum of 5 years' experience in carrying out audits, preferably in securities markets.

3. Audit Firm Structure: The audit firm should have at least five partners at all times, with at least two partners being full-time partners.

4. Regulatory Compliance: The auditor or audit firm should not be debarred or restrained from issuing certificates by professional bodies such as ICAI, ICSI, ICMAI, RBI, SEBI, or other regulator/law enforcement agencies.

5. Information Systems Expertise: The auditor or at least one partner/employee should be a Certified Information Systems Auditor (CISA) or possess a Diploma in Information Systems (DISA).

6. Financial Market Certification: The auditor or its employees/partners signing the internal audit report should hold a valid certification in "Financial Market & Securities Laws" from ICAI or an equivalent certification from another institution.

The empanelment process requires auditors/audit firms to submit an online application form along with the necessary documents. The Exchange will review and consider the applications for empanelment, with the final decision being at the sole discretion of the Exchange. Empanelment will be valid provided the auditor/audit firm submits the minimum required Internal Audit Report of at least one Trading/Clearing Member within six months from the date of empanelment. Failure to do so will result in the auditor/audit firm being disempaneled.

The NSE emphasizes the importance of compliance with this circular and urges its members to ensure their internal auditors are aware of and adhere to the requirements. The Exchange retains the right to initiate disciplinary actions, including discontinuation or disempanelment from conducting internal audits or related assignments for registered Trading/Clearing Members, after providing an opportunity for auditors/audit firms to submit explanations.