Forensic Audits of the Trading Members
The Exchange appoints auditors to conduct the Forensic Audit of the Trading members, who are identified based on serious violations/non-compliances observed during Exchange inspections etc. in line with SEBI Circular Nos. SEBI/HO/MIRSD/DOP/CIR/P/2018/153 dated December 17, 2018, on “Early Warning Mechanism to prevent diversion of client securities” and SEBI/HO/MIRSD/DPIEA/CIR/P/2020/115 dated July 1, 2020, on “Standard Operating Procedure in the cases of Trading Member /Clearing Member leading to default”. In certain cases, the Relevant Authority also advises the Exchange to conduct the forensic audit, more particularly where critical violations including misuse of client assets, unauthorized PMS, providing assured returns to the clients etc. are observed in the inspections/mystery shopping.
While the scope of the forensic audit varies from case to case, the forensic auditor is largely required to assess the status of assets and liabilities of the Trading Member and ascertain its positions vis-a-vis funds (details of client payables, client receivable and funds available with the broker) and securities (details of client securities pledged, shortfall observed and available with the broker), misappropriation/diversion of client funds and securities, and also identify whether the Trading Member has engaged in providing assured returns/unauthorised collective investments/portfolio management, promising or indicating fixed/guaranteed/regular returns/capital protection to its clients and the quantum of the funds and securities involved in the said activity.
FRAMEWORK FOR SELECTION AND APPOINTMENT OF AUDITORS
At present, SEBI has empaneled CA firms/companies to take up assignments relating to forensic audit. With a view to provide equal opportunity to all competent SEBI empaneled forensic auditors, the Exchange has put in place the following framework for selection and appointment of auditors to take up assignments relating to forensic audit of Trading Members:-
- The Exchange shall define the scope of audit, timelines for completion, and invite quotations from the auditors who are empaneled with SEBI to conduct the forensic audit. The list of auditors shall be disseminated on the Exchange website under the following link:- https://www.nseindia.com/trade/members-compliance.
- The auditors shall submit their quotations to the Exchange within 5 workings days from the date of the communication by the Exchange to the email firstname.lastname@example.org.
- Upon receipt of the quotations, the Exchange shall shortlist three auditors who have submitted lowest quotes. Thereafter, the lowest of these three quotes, shall be then circulated to other 2 auditors who have submitted the quotation, giving them an opportunity to revise the bid, if any, and submit the revised quotation.
- Post completion of this exercise, the forensic auditor with “Lowest Commercial” – “L1” shall be appointed.