SEBI Overhauls Broker Oversight: Joint MII Inspections to Replace Fragmented Audits from December

In a significant regulatory shift aimed at reducing duplication and improving coordination, the Securities and Exchange Board of India (SEBI) has directed Market Infrastructure Institutions (MIIs)—such as stock exchanges, clearing corporations, and depositories—to conduct joint annual inspections of brokers from 1 December 2025.

The move is designed to bring more efficiency to the supervisory process, especially for high-risk intermediaries, while also minimising operational disruption for the broader brokerage community.

Unified Inspections to Replace Fragmented Oversight

Under the current system, brokers are subject to multiple separate inspections by each MII they are affiliated with. This has led to operational fatigue and overlapping compliance demands. The new framework will consolidate these into one unified inspection per broker per year, with one of the MIIs appointed as the Lead Institution to manage coordination, enforcement, and follow-up.

To ensure seamless implementation, SEBI has directed MIIs to put in place a standard operating procedure (SOP), a shared information exchange framework, and a defined mechanism for escalation—all to be finalised by 1 November 2025.

Prioritising High-Risk Entities

The revised inspection framework is risk-based. Annual inspections will now be prioritised for brokers falling into the following categories:

• Top 25 brokers with frequent penalties
• Entities with high volumes of investor complaints or arbitration cases
• Brokers flagged under SEBI’s Risk-Based Supervision (RBS) system

Professional Clearing Members (PCMs) will be subject to joint inspections every two years. For all other brokers, inspections will occur at least once every three years—unless red flags warrant more frequent checks.

Background: From Fragmentation to Coordination

SEBI’s existing inspection policy, issued in 2017, had been criticised for its fragmented approach—resulting in overlapping and time-consuming audits for brokers operating across multiple platforms. Several broker associations had raised concerns about repeated inspections causing business disruption and strain on compliance resources.

This reform follows months of industry consultation, with SEBI indicating that a lighter, more data-driven supervisory regime is possible—particularly as exchanges and depositories increasingly use technology for real-time surveillance and off-site monitoring.

Sector Impact and Industry Response

The brokerage community has largely welcomed the decision, viewing it as a step towards regulatory rationalisation. According to a senior compliance officer at a leading broking house, “A single-point inspection model will help us prepare better and focus our compliance energy more effectively. It reduces noise and duplication.”

Market experts believe the move also reflects SEBI’s maturing supervisory stance—shifting from procedural audits to risk-targeted enforcement, in line with global best practices.