Preparing for the Annual Compliance Audit under IFSCA CMI Regulation 2025

Understanding the Annual Compliance Audit under IFSCA

The International Financial Services Centres Authority (IFSCA) introduced the Capital Market Intermediaries (CMI) Regulations, 2025 to strengthen regulatory oversight of entities operating in GIFT City, India’s premier International Financial Services Centre (IFSC).

Among its key provisions, the regulations mandate an Annual Compliance Audit for stock brokers, custodians, investment advisers, and other registered intermediaries. This audit ensures that all regulated entities operate within the framework of investor protection, fair market conduct, and risk management as laid down by IFSCA.

Why the CMI 2025 Regulations Matter for IFSC Entities

• Mandatory submission of Annual Compliance Audit Report by 30th September each year.
• Expanded coverage of compliance obligations including governance, AML/CFT, IT systems, grievance redressal, and client fund segregation.
• Higher emphasis on accountability of directors, compliance officers, and designated personnel.
• Alignment of IFSC entities with global best practices to boost investor confidence and capital flows into GIFT City.

Scope of the Annual Compliance Audit under CMI 2025

The scope of the audit is designed to be comprehensive and risk-focused, covering critical aspects of a broker-dealer or intermediary’s operations.

Key Areas of Compliance Review

• Registration and Net Worth – Validity of CMI registration, stock exchange membership, and minimum net worth requirements.
• Governance & Compliance Officer – Appointment and functioning of compliance officer, board oversight, conflict of interest policies.
• Code of Conduct – Adherence to IFSCA-prescribed conduct standards such as fair dealing, investor protection, and prohibition of misrepresentation.
• KYC / AML / CFT – Implementation of due diligence processes, risk categorisation of clients, and reporting of suspicious transactions.
• Segregation of Client Funds & Assets – Maintenance of separate accounts, reconciliation of ledgers, and prohibition of client-fund misuse.
• Risk Management & Internal Controls – Robust systems to manage operational, market, and cyber risks.
• Grievance Redressal – Effective complaint resolution within prescribed timelines, investor grievance register, and arbitration mechanisms.
• Regulatory Filings & Reporting – Timely submission of returns, financial statements, and the annual compliance audit report to IFSCA.
• Books & Record-Keeping – Maintenance of books, ledgers, and supporting records for at least eight years, in both physical and retrievable electronic formats.

Preparing for the Audit – A Practical Approach

Preparing for the Annual Compliance Audit under IFSCA CMI Regulation requires both strategic planning and operational readiness.

Pre-Audit Internal Checks

• Conduct a self-review of compliance with IFSCA guidelines.
• Identify gaps in documentation, processes, and filings.
• Ensure proper reconciliation of client accounts, ledgers, and bank statements.

Role of Compliance Officer & Management

• The Compliance Officer must ensure independent reporting of non-compliances and coordinate with auditors.
• The Board and Management should document governance practices and demonstrate effective oversight of compliance activities.

Documentation and Reporting

• Prepare a structured compliance file containing:
  • Registration certificates and exchange membership records.
  • Net worth and financial statements.
  • KYC records, AML policy documents, and client files.
  • Complaint registers and grievance resolution logs.
  • Risk management policy, cyber security framework, and continuity plans.
• Ensure timely filing of the final audit report with IFSCA by 30th September.

Common Gaps Observed in IFSCA Audits

Based on prior audit experiences under similar regulatory regimes, the following are frequently observed issues:

• Delayed filing of compliance reports or late submissions to IFSCA.
• Incomplete KYC records or lapses in AML reporting.
• Inadequate segregation of client funds, leading to audit qualifications.
• Weak documentation of governance practices, board minutes, or compliance officer reporting.
• Delayed investor grievance handling, exceeding prescribed timelines.

Identifying and addressing these gaps in advance helps entities avoid regulatory scrutiny and potential penalties.

Why a Professional Compliance Partner is Critical

For stock brokers and intermediaries in GIFT City, navigating the Annual Compliance Audit under IFSCA CMI Regulations can be challenging without expert support.

Experience of N Pahilwani & Associates

• 15+ years of professional experience in audit, valuation, and regulatory compliance.
• Offices in GIFT IFSC and Vadodara, ensuring proximity and on-ground expertise.
• A strong team of Chartered Accountants (CA) and Company Secretaries (CS) with domain knowledge of IFSC operations.
• Practical experience of conducting Annual Compliance Audits under IFSCA CMI regulations for registered entities.

How We Support IFSC Brokers in Audit Readiness

• End-to-end compliance health check and gap analysis.
• Assistance in preparing documentation and reports.
• Independent audit review and certification for submission to IFSCA.
• Advisory on strengthening governance, risk management, and compliance culture.

Conclusion

The Annual Compliance Audit under IFSCA CMI Regulation 2025 is more than a regulatory requirement—it is a trust-building mechanism that enhances investor confidence and positions GIFT City as a global financial hub.

With regulatory expectations rising, intermediaries must adopt a proactive approach to compliance. Partnering with experienced advisors ensures a smooth audit process, reduced risk of non-compliance, and enhanced credibility with regulators and investors.

Contact N Pahilwani & Associates for audit readiness review and ensure your entity is fully compliant under the IFSCA CMI 2025 Regulations.