SEBI Intermediary Inspection
SEBI Intermediary Inspection refers to periodic and thematic examinations conducted by SEBI or stock exchanges on registered intermediaries — including brokers, depositories, mutual funds, investment advisers, and merchant bankers — to verify compliance with applicable regulations, registration conditions, and investor protection norms.
All entities registered with SEBI as intermediaries — stockbrokers, sub-brokers, depository participants, portfolio managers, investment advisers, research analysts, merchant bankers, registrars to an issue, underwriters, and others — are subject to periodic inspection by SEBI or by designated stock exchanges (NSE and BSE) acting under SEBI delegation. Inspection is the primary front-line supervisory tool SEBI uses to ensure ongoing regulatory compliance rather than merely verifying compliance at the time of registration.
Periodic inspections are conducted on a pre-scheduled basis, typically annually or once every two to three years depending on the size and category of the intermediary. Thematic inspections are targeted exercises focused on a specific compliance area — for instance, SEBI may conduct a thematic inspection of all investment advisers to examine fee disclosure practices, or a sweep inspection of brokers on the adequacy of client fund segregation.
During an inspection, SEBI or exchange officers review a comprehensive range of records: KYC documentation, client agreements, trading data, margin collection records, bank account reconciliations, complaints registers, internal audit reports, and any risk management or compliance frameworks. Intermediaries are required to make available all requested records and provide explanations for any deviations identified.
Inspection findings are categorised as minor, major, or critical depending on their severity. Minor observations may lead to advisory letters requiring corrective action. Major findings can trigger show-cause notices and adjudication proceedings. Critical findings — such as misappropriation of client funds, non-segregation of client securities, or systematic KYC fraud — can lead to immediate suspension of registration, referral to SEBI's Investigation Wing for a deeper probe, and ultimately prosecution.
The outcomes of broker inspections by NSE and BSE are shared with SEBI. SEBI uses aggregated inspection data to identify systemic risks in intermediary conduct, design new regulatory requirements, and prioritise enforcement resources. For regulated intermediaries, maintaining inspection-ready compliance infrastructure — including a functioning compliance officer, current internal audit, and updated records — is an ongoing operational priority.