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 areas such as 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.
• Expanded coverage including governance, AML/CFT, IT systems, grievance redressal, and fund segregation
• Stronger accountability for directors, compliance officers, and key personnel
• Alignment of IFSC practices with global regulatory benchmarks, enhancing investor trust and institutional participation

Regulatory Update: IFSCA Prescribes Reporting Framework for Annual Compliance Audit [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 annual compliance reporting process. The prescribed framework covers general regulatory obligations, category-specific requirements and, where applicable, additional compliance requirements prescribed by Market Infrastructure Institutions (MIIs).

CMIs are required to submit the prescribed audit documentation for the preceding financial year by 30 September each year. The framework also includes additional reporting requirements for certain MII members and integrates annual audit requirements relating to Global Access activities into the broader Annual Compliance Audit framework.

For a detailed analysis of the ACAR, ACAC, reporting requirements and practical implications of the 5 June 2026 circular, read our detailed guide on the IFSCA Annual Compliance Audit Reporting Framework for CMIs

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 nature of the intermediary’s registration, activities and applicable regulatory obligations.

Key Areas of 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: 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: Practical Steps

1. Identify Applicable Audit and Reporting Requirements

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

2. Conduct Internal Reviews

• Perform a self-assessment of compliance with IFSCA standards as part of IFSC audit preparation checklist
• Identify documentation or procedural gaps early
• Reconcile client ledgers, accounts, and bank balances
  

3. Strengthen Compliance Oversight

• The Compliance Officer must ensure independent identification and reporting of non-compliances under the IFSCA compliance audit framework
• The Board and Management should demonstrate effective governance and oversight mechanisms
  

4. Documentation & Reporting Readiness

Maintain a comprehensive compliance file including:

• Registration certificates and financial statements
• KYC/AML documentation and client onboarding records
• Complaint logs and resolution documentation
• Risk and cyber security policies
• Completed Annual Compliance Audit documentation, including the prescribed ACAR and 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:

• Delay in filing audit reports or other IFSCA submissions
• Gaps in KYC/AML procedures and documentation
• Inadequate segregation of client and proprietary funds
• Weak board documentation or compliance officer reporting
• Delayed investor grievance responses
  
• Use of outdated audit checklists, reporting formats or regulatory requirements

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

Why Expert Advisory Support Matters

Complying with IFSCA’s Annual Audit obligations demands technical understanding, organized documentation, and regulatory foresight. A professional advisory firm ensures all three, especially for entities undergoing IFSC audit compliance review.

Experience of Nexpective Advisors

• Specialized IFSC focus: Deep experience across audit, compliance, and regulatory frameworks within GIFT City
• On-ground presence: Located in GIFT City, Gandhinagar — offering direct access and familiarity with IFSC operations
• Expert team: Chartered Accountants, Company Secretaries, and financial professionals with domain experience in IFSCA compliance and audit services
• Proven track record: Successfully supporting capital market intermediaries through annual audits and regulatory certifications

How Nexpective Advisors Helps You Stay Audit-Ready

• Compliance gap assessments and documentation reviews
• Review of applicable regulatory requirements and audit checklists
• Support with audit preparation and compliance documentation
• Assistance with ACAR and ACAC readiness, where applicable
• Governance, AML/KYC and risk management framework reviews
• Regulatory reporting and ongoing compliance advisory

Support for entities preparing for IFSCA annual compliance audit and certification

Conclusion

The Annual Compliance Audit under IFSCA CMI Regulation 2025 is not merely a procedural formality — it’s an essential tool for credibility and investor trust in GIFT City and a key component of the broader IFSC audit and compliance framework.

With regulatory expectations evolving rapidly, proactive compliance has become a business necessity. Partnering with Nexpective Advisors ensures audit readiness, seamless documentation, and a confident compliance posture before the regulator.

Contact Nexpective Advisors today for a readiness review and ensure your entity meets all compliance benchmarks under IFSCA’s CMI Regulations, 2025 and IFSC compliance standards.