SEBI Introduces Joint Inspections for Brokers by MIIs to Reduce Disruption and Improve Oversight

In a significant step towards enhancing efficiency in supervision and reducing operational disruptions for brokers, the Securities and Exchange Board of India (SEBI) has announced a new policy for the joint inspection of brokers and depository participants by Market Infrastructure Institutions (MIIs). The circular, issued on 7 August, aims to streamline the inspection process and create a more cohesive framework for oversight across the capital market ecosystem.

Joint Inspection and Information Sharing

As per SEBI’s circular, entities selected for annual inspections will now be jointly inspected for all segments by all exchanges, alongside their depository participant (DP) operations and clearing activity. “Entities selected for annual inspections shall be inspected for all segments jointly by all exchanges along with their depository participant (DP) operations and clearing activity,” the circular stated.

MIIs, which include stock exchanges, depositories, and clearing corporations, will also establish an information-sharing mechanism to exchange inspection observations of entities holding multiple registrations with MIIs.

Risk-Based Criteria and Inspection Frequency

The inspection process will focus on high-risk entities based on penalties and risk scores. This includes the top 25 entities paying high and recurring penalties for poor reporting of compliance issues, and the top 25 entities ranked by investor complaints and arbitration cases as a percentage of active clients; both categories will be inspected irrespective of when they were last inspected. 

Entities outside these risk categories will undergo inspection at least once every three years. The criteria have been streamlined to emphasise penalties, investor complaints, and risk scores.

Implementation, SOP, and Special Inspections

MIIs have been advised to frame a joint Standard Operating Procedure (SOP) by 1 November 2025, detailing inspection criteria and the information sharing mechanism. SEBI will designate one ‘Lead MII’ to initiate enforcement action after inspections. The circular will come into effect on 1 December 2025. 

Additionally, MIIs will retain the prerogative to carry out special-purpose or limited inspections triggered by patterns found during investor complaint resolution or arbitration, complaints of broker malpractices, or references from authorities. 

“MIIs shall have the prerogative to carry out special purpose/limited inspections based on any triggers like patterns found during investor complaint resolution/Arbitration, complaints on specific malpractices of a broker or references from various authorities. The inspection shall be irrespective of the fact of when the last inspection was carried out,” the SEBI circular noted.

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Conclusion

By consolidating inspections and introducing a risk-based framework, SEBI’s new policy aims to ease the compliance burden on brokers while ensuring robust supervision. The move is expected to improve coordination between MIIs, reduce repetitive inspections, and maintain a sharper focus on high-risk entities, strengthening the overall market oversight framework.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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