Preparing for the Annual Compliance Audit under IFSCA CMI Regulations, 2025

Understanding the Annual Compliance Audit under IFSCA

The International Financial Services Centres Authority (IFSCA) introduced the IFSCA (Capital Market Intermediaries) Regulations, 2025 to strengthen the regulatory framework governing Capital Market Intermediaries (CMIs) operating in GIFT IFSC.

Under these Regulations, Capital Market Intermediaries are required to comply with applicable regulatory, governance and operational requirements, including the Annual Compliance Audit framework. The audit serves as an important mechanism for assessing compliance with applicable requirements relating to governance, investor protection, risk management and other obligations relevant to an intermediary’s activities.

Key Annual Compliance Audit Requirements for CMIs

• Annual Compliance Audit reporting is required within the prescribed regulatory timeline, with the reporting framework issued on 5 June 2026 prescribing submission of the ACAR and ACAC by 30 September each year for the preceding financial year.
• The audit framework may cover applicable areas relating to governance, AML/CFT, internal controls, risk management, investor protection and other regulatory obligations.
• Compliance oversight requires appropriate involvement of management, compliance personnel and other responsible persons, depending on applicable requirements.
• The category-specific reporting framework enables compliance requirements to be assessed based on the intermediary’s registration category and activities.

Regulatory Update: IFSCA Prescribes Annual Compliance Audit Reporting Framework [Updated on 5th June, 2026]

IFSCA subsequently issued a circular dated 5 June 2026 prescribing a standardised reporting framework for the Annual Compliance Audit of Capital Market Intermediaries (CMIs) operating in GIFT IFSC.

The framework introduces the Annual Compliance Audit Report (ACAR) and Annual Compliance Audit Checklist (ACAC), bringing greater consistency and structure to the documentation and reporting of the Annual Compliance Audit. The prescribed framework includes general regulatory requirements, category-specific requirements and, where applicable, additional requirements relating to Market Infrastructure Institutions (MIIs).

The circular also prescribes additional reporting requirements for relevant intermediaries that are members of MIIs and integrates applicable audit reporting relating to Global Access activities into the broader Annual Compliance Audit framework.

CMIs should therefore review their applicable compliance requirements, documentation, internal controls and reporting processes to ensure readiness for the Annual Compliance Audit.

Scope of the Annual Compliance Audit

The Annual Compliance Audit involves a review of an intermediary’s compliance with applicable regulatory requirements and relevant governance, operational and control frameworks. The specific scope of review may depend on the intermediary’s registration category, activities and applicable regulatory obligations.

Key Areas of Compliance Review

Depending on the intermediary’s registration category, business activities and applicable regulatory requirements, the Annual Compliance Audit may involve review of areas such as:

• Registration and Financial Requirements: Compliance with applicable registration, membership, capital and net worth requirements.
• Governance and Compliance Oversight: Effectiveness of governance arrangements, compliance monitoring, oversight and conflict-management processes.
• Code of Conduct: Compliance with applicable standards of conduct and investor protection requirements.
• KYC / AML / CFT: Client due diligence, risk assessment and other applicable AML/CFT controls and reporting processes.
• Client Assets and Fund Segregation: Maintenance, reconciliation and segregation requirements, where applicable.
• Risk Management and Internal Controls: Operational, market, technology, cyber and other relevant risk management controls, depending on the intermediary’s activities.
• Grievance Redressal: Complaint handling, resolution and related record-keeping requirements, where applicable.
• Regulatory Filings: Timely and accurate submission of applicable returns, statements, disclosures and audit reports.
• Record-Keeping: Maintenance and retention of books, records and supporting documentation in accordance with applicable regulatory requirements.

Preparing for the Annual Compliance Audit: A Practical Approach

Preparing for the Annual Compliance Audit requires a structured approach to applicable regulatory requirements, internal controls, documentation and reporting readiness.

1. Identify Applicable Audit and Reporting Requirements

CMIs should first identify the regulatory requirements applicable to their registration category and business activities. Following the reporting framework issued on 5 June 2026, entities should also review the applicable Annual Compliance Audit Checklist (ACAC) and identify the relevant general, category-specific and, where applicable, Market Infrastructure Institution (MII)-related requirements.

2. Conduct Internal Compliance Reviews

• Conduct a self-assessment against applicable IFSCA regulatory requirements and relevant audit requirements.
• Identify gaps in documentation, processes, internal controls and regulatory filings.
• Review applicable reconciliations of client accounts, ledgers and other relevant records.

3. Strengthen Compliance Oversight

• Compliance personnel should ensure that applicable compliance gaps and non-compliances are appropriately identified, documented and addressed.
• The Board and Management should maintain effective oversight of compliance activities in accordance with applicable governance and regulatory requirements.

4. Documentation and Reporting Readiness

Maintain organised and accessible supporting documentation, including, as applicable:

• Registration certificates and membership records.
• Financial statements and documentation relating to applicable financial or net worth requirements.
• KYC/AML documentation and client onboarding records.
• Complaint and grievance handling records.
• Relevant risk management, technology, cyber security and business continuity policies and documentation.
• Completed Annual Compliance Audit documentation, including the prescribed Annual Compliance Audit Report (ACAR) and Annual Compliance Audit Checklist (ACAC), prepared for submission within the applicable reporting timeline.

Common Compliance Gaps to Watch For

The following are common areas that CMIs should review as part of their audit readiness and ongoing compliance processes:

• Delays in filing applicable audit reports or regulatory submissions
• Gaps in KYC/AML procedures and supporting documentation
• Inadequate segregation and reconciliation of client and proprietary assets, where applicable
• Weak governance documentation or compliance reporting
• Delays in addressing investor complaints or grievances, where applicable
• Incomplete supporting documentation for regulatory compliance
• Use of outdated or inapplicable audit checklists and reporting formats

Identifying and addressing these gaps early can help CMIs reduce compliance deficiencies, respond effectively to audit observations and strengthen their overall regulatory compliance framework.

Why a Professional Compliance Partner is Critical

Preparing for the Annual Compliance Audit requires a structured approach to applicable regulatory requirements, documentation, governance and compliance controls. Professional support can assist Capital Market Intermediaries (CMIs) in assessing their compliance readiness, identifying potential gaps and strengthening relevant processes before the audit and reporting process.

Experience of N Pahilwani & Associates

• 15+ years of professional experience in audit, valuation, and regulatory compliance.
• Offices in GIFT IFSC and Vadodara, supporting clients with proximity and familiarity with the IFSC ecosystem.
• A team of Chartered Accountants (CA) and Company Secretaries (CS) with relevant professional experience and domain knowledge.
• Experience in supporting Capital Market Intermediaries with applicable regulatory compliance and audit-readiness requirements.

How We Support CMIs in Audit Readiness

Our support includes:

• Annual Compliance Audit readiness assessments and compliance gap analysis.
• Review of applicable regulatory requirements and audit checklists.
• Assistance with audit preparation and supporting compliance documentation.
• Assistance with Annual Compliance Audit Report (ACAR) and Annual Compliance Audit Checklist (ACAC) readiness, where applicable.
• Governance, AML/KYC and risk management framework reviews.
• Review and development of relevant policies, procedures and compliance documentation.
• Ongoing advisory on applicable IFSCA regulations, circulars and compliance requirements.

Conclusion

The Annual Compliance Audit under the IFSCA (Capital Market Intermediaries) Regulations, 2025 is an important part of the regulatory compliance framework applicable to Capital Market Intermediaries operating in GIFT IFSC.

The reporting framework prescribed by IFSCA through its circular dated 5 June 2026 further standardises the documentation and reporting process through the Annual Compliance Audit Report (ACAR) and Annual Compliance Audit Checklist (ACAC).

CMIs should proactively identify the requirements applicable to their registration category and activities, review the relevant audit and reporting requirements, maintain appropriate supporting documentation and address potential compliance gaps before the applicable reporting deadline.

A structured approach to audit readiness can help intermediaries strengthen their compliance processes and respond effectively to applicable regulatory requirements.

Contact N Pahilwani & Associates for professional guidance on Annual Compliance Audit readiness and applicable IFSCA compliance requirements.