Sebi revises norms, bars managing directors from MIIs' audit committees

Sebi excludes Executive Directors including MDs from audit committees of MIIs and mandates stricter internal audit norms based on industry feedback and SMAC inputs

In a bid to strengthen governance at stock exchanges, depositories and clearing corporations, the Securities and Exchange Board of India (Sebi) on Monday revised the norms on internal audit mechanisms and the composition of audit committees at market infrastructure institutions (MIIs).

 

The audit committee of an MII will no longer include any Executive Director, including the Managing Director. While MDs will not be part of the committee, they may be invited to attend meetings with the permission of the committee chairman. However, they will not have voting rights.

 

Similarly, key management personnel of the MII will have the right to be heard in audit committee meetings when the auditor’s report is under consideration, but they will not have voting rights. 

 

In a bid to strengthen the governance at stock exchanges, depositories and clearing corporations, the Securities and Exchange Board of India (Sebi) on Monday revised the norms on internal audit mechanism and composition of the audit committee of market infrastructure institutions (MIIs).

 

The audit committee of the MII will no longer have any Executive Director, including the Managing Director (MD). While MDs will not be a part of the committee, they can be invited to attend the meeting with the permissions of the chairman of the committee. However, they will not have the right to vote.

 

Similarly, the key management personnel of the MII will have a right to be heard in the meetings of the audit committee when it considers the auditor’s report; however, they will not have a right to vote in the same.

 

The changes come after industry's feedback and discussions with the Secondary Market Advisory Committee (SMAC) of Sebi. The audit committee has the responsibility to approve related party transactions, scrutiny of financial statements, and evaluation of financial controls and risk management systems. The market regulator is of the view that such roles require objective evaluation.

 

The market regulator has also directed MIIs to conduct an internal audit of all functions and activities at least once in a financial year.

 

“The internal auditor of the MII shall be an independent audit firm(s). The MIIs shall have a policy for appointment of internal auditors approved by the audit committee and governing board of the MII,” stated Sebi in a circular on Monday.

 

The regulator added that the internal auditor will report only to the audit committee of the MII. Further, the observations of the internal auditor will be sent to the respective head of departments for their comments which will be included in the final report. If any observations are dropped after clarification from the HoDs, then rationale or justification will have to be provided.

 

The auditor has been directed to appraise the audit committee at least once in every six months on  critical issues concerning the MII, in the absence of the management.

 

The new norms will come into effect after three months.