Introduction
For many Alternative Investment Funds (AIFs), IT and cybersecurity compliance has historically been treated as a one time, event driven exercise, typically triggered by an audit requirement, trustee request, or regulatory inspection. A consultant is engaged, controls are reviewed, gaps are documented, and a report is submitted. Once the audit closes, attention shifts back to core fund activities.
This approach is increasingly misaligned with how regulators, trustees, and Limited Partners (LPs) assess risk today. The Securities and Exchange Board of India has steadily moved away from a checkbox view of IT compliance toward an expectation of continuous governance, ongoing oversight, and demonstrable execution. In this context, one time IT audits, while still useful, are no longer sufficient to establish or sustain compliance credibility.
AIFs operate in dynamic environments. Systems change, users change, vendors change, threats evolve, and vulnerabilities emerge continuously. A static audit captures risk at a single point in time, while SEBI evaluates whether fund managers are capable of managing foreseeable risks on an ongoing basis. This article explains why one time IT audits fall short, how SEBI views IT and cybersecurity governance for AIF today, and what AIFs must do to move from episodic compliance to sustainable regulatory readiness.
The Nature of IT and Cyber Risk Has Changed
Cyber risk is no longer occasional or hypothetical. It is persistent, evolving, and largely driven by:
- Continuous discovery of software vulnerabilities
- Constant changes in cloud platforms and SaaS tools
- Frequent onboarding and offboarding of users and vendors
- Increasing sophistication of phishing and social engineering
A one time audit reflects conditions that may no longer exist weeks, or even days, later. SEBI recognises this reality and therefore focuses less on whether an audit occurred and more on how risks are governed over time.
SEBI’s Shift From Event Based to Ongoing Oversight
SEBI does not prescribe how often audits must be conducted. Instead, inspection patterns show a clear preference for:
- Continuous visibility into IT and cyber risks
- Periodic review and reporting to management and trustees
- Evidence of corrective actions and follow through
During inspections, SEBI increasingly asks:
- How are risks monitored between audits?
- How are new systems and vendors assessed?
- How are vulnerabilities and incidents handled in real time?
One time audits struggle to answer these questions convincingly.
Why One Time IT Audits Create a False Sense of Security
A completed IT audit report often creates misplaced confidence. Common assumptions include:
- “We passed the audit, so we are compliant”
- “No major findings means low risk”
- “We can revisit this next year”
In reality:
- An audit does not prevent new vulnerabilities
- A clean report does not guarantee future resilience
- Compliance deteriorates quickly without active management
SEBI views unmanaged post audit drift as a governance weakness.
Static Audits vs Dynamic Operating Environments
AIF technology environments are highly dynamic:
- Cloud permissions change frequently
- SaaS tools are added organically
- Vendors update platforms without notice
- Employees join, leave, or change roles
A static audit snapshot cannot capture these changes. SEBI therefore evaluates whether AIFs have processes that adapt continuously, not whether they passed a historical test.
The Fiduciary Lens, Foreseeable and Preventable Risk
SEBI increasingly applies a fiduciary lens to IT and cybersecurity. From this perspective:
- Most cyber risks are foreseeable
- Many incidents exploit known weaknesses
- Failure to monitor and act is a lapse of due care
One time audits identify risks, but continuous governance is what demonstrates fiduciary diligence.
What SEBI Actually Looks for During Inspections
Based on inspection trends, SEBI focuses on:
- Governance structures and accountability
- Ongoing monitoring mechanisms
- Evidence of periodic review
- Incident handling and learning
- Trustee and senior management oversight
An audit report may support these areas, but cannot replace them.
Common Gaps in One Time Audit Driven Compliance
AIFs relying heavily on one time audits often exhibit:
- Policies that exist but are not operationalised
- Controls that were compliant once but have degraded
- No tracking of remediation actions
- No visibility into post audit changes
- Weak linkage between IT risk and fund governance
These gaps are routinely highlighted during inspections.
Why Continuous Monitoring Matters More Than Annual Audits
Continuous monitoring enables cyber guidelines for AIFs to:
- Detect control failures early
- Respond to new vulnerabilities promptly
- Maintain consistent compliance posture
- Demonstrate active oversight
SEBI increasingly treats ongoing control effectiveness as more important than audit frequency.
Audits Identify Gaps, Governance Closes Them
Audits are diagnostic tools. Governance frameworks are treatment plans. Without:
- Clear ownership
- Defined timelines
- Tracking and reporting mechanisms
audit findings often remain unresolved. SEBI scrutinises not just findings, but how funds act on them.
The Role of Trustees and Senior Management
SEBI expects trustees and senior management to:
- Receive periodic IT and cyber risk updates
- Understand material risks and incidents
- Ensure remediation and improvement
One time audit reports rarely provide the ongoing visibility trustees require.
Continuous Compliance Does Not Mean Continuous Audits
Importantly, SEBI does not expect constant audits. Continuous compliance means:
- Periodic reviews
- Automated monitoring where feasible
- Regular reporting and oversight
- Exception and incident management
This approach is practical even for lean AIFs.
Technology Changes Faster Than Audit Cycles
Most AIFs undergo significant technology change between audits:
- New cloud tools
- New vendors
- New reporting platforms
- New remote work practices
SEBI expects governance to keep pace with these changes, not wait for the next audit cycle.
Evidence Is the Differentiator
During inspections, SEBI places high value on:
- Logs and reports showing ongoing monitoring
- Records of reviews and decisions
- Evidence of remediation actions
- Documentation of incidents and responses
One time audits provide limited evidence of ongoing diligence.
Why Continuous Compliance Improves Inspection Outcomes
AIFs with continuous governance models:
- Answer inspection questions confidently
- Produce evidence quickly
- Demonstrate maturity and awareness
- Face fewer adverse observations
SEBI recognises and rewards this maturity.
From Compliance Event to Operating Discipline
The most resilient AIFs treat IT and cybersecurity as:
- An operating discipline
- A governance responsibility
- A fiduciary obligation
rather than a periodic compliance event.
How Infodot Helps AIFs Move Beyond One Time Audits
Infodot Technology helps AIFs transition from audit centric compliance to continuous, SEBI aligned governance. Rather than replacing audits, Infodot complements them with ongoing oversight and execution.
Infodot supports AIFs by:
- Designing continuous IT and cyber governance frameworks
- Implementing monitoring and reporting mechanisms
- Tracking remediation and exceptions
- Preparing trustee and inspection ready evidence
- Acting as an ongoing compliance and security partner
This enables AIFs to remain inspection ready at all times, not just during audits.
Conclusion
One time IT audits remain useful, but they are no longer sufficient for SEBI compliance in AIFs. In a risk environment defined by constant change, evolving threats, and increased regulatory scrutiny, compliance must be continuous, governed, and demonstrable.
SEBI’s expectations have shifted from “Did you audit?” to “How do you manage risk every day?” AIFs that embrace this shift not only reduce regulatory exposure but also strengthen operational resilience, investor confidence, and fiduciary credibility.
Moving beyond one time audits is not about adding complexity. It is about embedding discipline, ownership, and visibility into everyday fund operations.
FAQs
Are one time IT audits mandatory for AIFs?
Audits are useful, but SEBI focuses more on ongoing governance and risk management rather than isolated audit events.
Why are one time audits insufficient today?
Because technology environments and cyber risks change continuously, making static assessments quickly outdated.
Does SEBI prohibit one time audits?
No, but SEBI does not treat them as proof of continuous compliance.
What does SEBI expect instead of one time audits?
SEBI expects continuous oversight, periodic reviews, and evidence of active risk management.
Can audits still support compliance?
Yes, audits support compliance but must be complemented by ongoing governance and monitoring.
How often should IT risks be reviewed?
Reviews should be periodic and risk based, not limited to annual audit cycles.
Do trustees rely only on audit reports?
No, trustees expect ongoing visibility into IT and cyber risks.
Is continuous compliance expensive for AIFs?
No, proportionate controls and managed services make it practical even for lean funds.
Do inspections focus on audit reports?
Inspections focus more on governance, evidence, and ongoing control effectiveness.
Can a clean audit guarantee SEBI compliance?
No, compliance can degrade quickly after audits without active management.
Are cyber risks considered foreseeable by SEBI?
Yes, most cyber risks are foreseeable and therefore require ongoing management.
What evidence matters most during inspections?
Evidence of monitoring, reviews, remediation, and decision making over time.
Does SEBI expect continuous audits?
No, SEBI expects continuous governance, not continuous auditing.
Can technology changes invalidate an audit?
Yes, new systems or vendors can render audit conclusions outdated.
Is incident response part of continuous compliance?
Yes, handling and learning from incidents demonstrates active governance.
Do policies alone satisfy SEBI expectations?
No, SEBI expects execution and evidence, not just documented intent.
Are vulnerability updates relevant between audits?
Yes, vulnerability management must be continuous to remain effective.
Can MSPs support continuous compliance?
Yes, MSPs can support execution while management retains oversight.
Does SEBI review remediation tracking?
Yes, unresolved findings are often highlighted during inspections.
Are audit gaps acceptable if documented?
Gaps must be addressed or formally risk accepted with justification.
Is continuous monitoring expected for all systems?
Monitoring should focus on critical systems and data proportionately.
Do LPs also prefer continuous compliance?
Yes, LP due diligence increasingly aligns with SEBI expectations.
Can continuous compliance reduce inspection risk?
Yes, it significantly improves inspection outcomes and confidence.
Is compliance ownership important?
Clear ownership is essential to demonstrate accountability and governance.
Do one time audits detect new threats?
No, new threats emerge continuously after audits conclude.
Are access changes reviewed between audits?
They should be reviewed periodically to prevent risk accumulation.
Does continuous compliance improve resilience?
Yes, it enables faster detection, response, and recovery.
Is documentation required for ongoing controls?
Yes, documentation provides evidence of sustained diligence.
Can audits replace governance frameworks?
No, audits assess controls; governance ensures controls remain effective.
Does SEBI penalise audit only approaches?
SEBI may raise observations if governance is found lacking.
Are cloud environments harder to audit once?
Yes, cloud changes frequently, requiring ongoing oversight.
Is compliance a one time achievement?
No, compliance is an ongoing operational state.
Do small AIFs face the same expectations?
Yes, expectations apply proportionately, not exemptively.
How does Infodot support continuous compliance?
Infodot provides governance, monitoring, reporting, and audit ready evidence continuously.What is the biggest risk of audit only compliance?
A false sense of security that leaves funds exposed between audit cycles.
