Mumbai: The Securities and Exchange Board of India (Sebi) will significantly reduce routine inspections of market intermediaries from this fiscal year, shifting to a risk-based supervisory model that targets firms flagged for potential violations while easing compliance burdens for well-governed entities.
The market regulator on Friday announced a revamped inspection framework for stock brokers, depository participants (DPs), investment advisers (IAs) and research analysts (RAs). It said the changes are aimed at improving regulatory efficiency while reducing duplication in supervisory processes.
Under the new approach, Sebi will conduct only about one-third of the inspections it carried out in the previous fiscal year, taking into account the regular inspections already undertaken by stock exchanges and depositories.
The regulator said the move follows consultations with market infrastructure institutions (MIIs) and the supervisory body for investment advisers and research analysts.
Shift to risk-based model
The overhaul marks a shift from blanket annual inspections towards a dynamic risk-based model. Sebi said it will discontinue repetitive comprehensive inspections of compliant entities, particularly qualified stock brokers (QSBs), unless they repeatedly appear on risk parameters, carry high risk scores or trigger multiple alerts generated by exchanges.
Sebi said it has expanded the set of risk indicators used to identify entities for inspection, with greater emphasis on recent alerts from stock exchanges, investor complaints and even social media inputs. As a result, intermediaries selected for inspection will now be shortlisted every quarter rather than through a blanket annual process.
To further reduce compliance costs, it will also conduct joint inspections of entities holding multiple intermediary registrations wherever feasible. Such inspections will involve various Sebi departments coordinating their supervisory activities, reducing the number of visits made to the same entity during a financial year.
Driven by market intelligence
The regulator said inspections will increasingly be driven by market intelligence and references from its regional and local offices, including cases involving technical glitches, cyber incidents and issues related to authorized persons of stock brokers.
During fiscal 2026, Sebi and the exchanges jointly conducted 179 inspections of 106 brokers, according to Sebi’s latest annual report. Independently, the stock exchanges completed 973 inspections of 822 brokers across market segments.
The market regulator and depositories conducted 28 joint inspections of 23 DPs, while depositories executed 617 inspections of 583 DPs to safeguard securities holding systems.
In the same period, annual information technology inspections were carried out for 18 intermediaries.
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