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TMI BlogGuidelines for inspection of Depository Participants (DPs) by DepositoriesX X X X Extracts X X X X X X X X Extracts X X X X ..... determining the size of sample, depositories shall be guided by 'Adaptive Sample Size determination methodology' as mentioned at Annexure - II. Categorization / Risk Rating of DPs 5. For the purpose of computing total risk score of DPs, depositories shall be guided by "DP Rating Model / Categorization" as mentioned at Annexure - III. 6. Depositories should periodically undertake risk - impact analysis for each of the inspection areas, assign appropriate risk weightage, calculate risk scores for each DPs in the lines mentioned below. a) Risk Weightage: Depositories shall assign risk weights for each of inspection areas after taking into consideration following factors: 1. Operational risks in each of the inspection areas. 2. Category of DPs (such as stock broker DPs, bank DP, etc) 3. Size of Operation 4. Repetitive violations 5. IT Security and BCP 6. Complaints received and redressed b) Quantitative Score Calculation: Depositories shall arrive at a Quantitative Risk Score for each inspection area by multiplying percentage of non-compliance to the sample size with the corresponding assigned risk weight. c) Qualitative Score Calculation: Depositories sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors in securities and to promote the development of, and to regulate the securities market. Yours faithfully, DILIP B. J. Deputy General Manager email: [email protected] Enclosures: (i) Annexure -I : List of inspection areas (ii) Annexure - II: Adaptive sample size determination methodology (iii) Annexure - III: DP Rating / Categorization Model Annexure -I List of Inspection Areas 1. Depositories shall inspect the areas mentioned at para 2 below during inspection of DPs with regards to any 1.1. Circulars / Guidelines issued by SEBI on the areas mentioned below. 1.2. Guidelines / Operating Instructions / Directions from depositories on the areas mentioned below. 2. In case there are built in system checks at the depository that ensure compliance of any of the inspection areas / sub -areas with regard to point 1.1 and 1.2 above, the depository may decide on the including the same during the inspection of DPs Inspection Areas A. Account Opening / KYC Documents A.1. Account Opening forms A.2. KYC Documents A.2.1. PAN Verification A.2.2. In-person verification A.2.3. Forwarding of Documents to KYC Registration Agency (KRA) A.3. Proof of Identity (POI) A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LA) H.1. Compliance with PMLA Act, 2002 and SEBI Guidelines on areas such as Customer due diligence, suspicious transaction monitoring , reporting and record keeping H.2. Appointment of Principal officer as required under PMLA Act,2002 H.3. Mechanism to deal with alerts provided by Depository H.4. Suspicious Transactions reports to FIU H.5. Any other area as may be specified by the depository I. Maintenance of record and documents I.1. Information regarding place(s) of record keeping I.2. Outsourcing of record keeping activities I.3. Any other area as may be specified by the depository J. Service Centre Opening and closing/ modification of service centers J.1. Procedure for Opening /Closure of Service centers J.2. Details of Service centre on Depository website J.3. Qualified persons at service centers J.4. Any other area as may be specified by the depository K. Information Technology areas K.1. Hardware, Software and Network requirements / configurations K.2. Logical and Physical restrictions / safeguards K.3. IT Security K.4. Procedure for alteration of parameters / configurations K.5. Redundancy K.6. Any other area as may be specified by the depository L. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a maximum cap of 1000 accounts. * Final Sample Size: The final sample size shall also be dependent on past rating / categorization of DP. The following multipliers shall be used to determine the final sample size for the current inspection. In case the total number of instances / cases is less than the final sample size, then 100% of the samples shall be verified. DP Rating / Categorization Multiplier High risk 3 Medium High risk 2 Medium risk 1.5 Low risk 1 * The selected sample shall maintain the proportion of new accounts opened in each category, except for Account Opening Forms (AOF) relating to FIIs where it shall be checked on a 100% basis. 2. Sample Size for inspection area relating to DIS * Base sample size: 10% of total DIS processed or 200 processed DIS whichever is higher, with a maximum cap of 1000 DIS. * Final Sample Size: The sample size shall also be dependent on rating / categorization of DP. The following multipliers shall be used to determine the final sample size for the current inspection. In case the total number of instances / cases is less than the final sample size, then 100% of the samples shall be verified. DP Rating / Categorizati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Quantitative Score Sr No Inspection Areas Weight (A) B = No of Instances divided by Sample size Inspection Score IS = A*B A. Inspection Area 1 A.1. Inspection Sub Area A 1 A.2. Inspection Sub Area 2 Total Score for Inspection Area 1 B. Inspection Area 2 B.1. Inspection Sub Area B 1 B.2. Inspection Sub Area B 2 B.3. Inspection Sub Area B 3 Total Score for Inspection Area 2 Depositories shall include all inspection areas and sub areas, as per Annexure -I (List of Inspection Areas) of this circular, in the above model to arrive at the Quantitative Score for a DP. Table: Indicative Table for calculation of Quantitative Score for Complaints Received Sr No Type and Nature of Complaint Weight (A) (Number of Complaints redressed) / Number of Complaints received) Inspection Score IS = A*B T Complaints T.1 Complaint Sub Area 1 T.2 Complaint Sub Area 2 Total Score for Complaints Quantitative Score = Σ (Scores of Inspection Areas including Total score for Complaints) II. Qualitative Score Calculation: Specific weights shall be assigned to each area as decided by depository. The Total Qualitative Score shall be the summation of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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