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ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has barred the directors and chief executives of Modaraba companies from becoming a director in any other Modaraba company engaged in a similar business in Pakistan.

The Modaraba Regulations, 2021, issued by the SECP, revealed the details of the conflict of interest of the directors and the chief executives of the Modaraba companies. Under the new regulations, the directors or chief executive of a Modaraba company shall not be a director in any other Modaraba company engaged in a similar business in Pakistan.

Provided, that this condition shall not apply to nominees of the federal or provincial governments on the board of directors of any Modaraba company.

The directors or chief executive of a Modaraba company shall not be a director, chief executive, chief financial officer, chief internal auditor, research analyst or a trader (by whatever name or designation called) in a stock brokerage house or in any company or entity owned and controlled by a member of the securities exchange.

The directors or chief executive of a Modaraba company shall not be a member of the securities exchange engaged in the business of brokerage or is a spouse of such member or in control of more than 20 percent shareholding, directly or indirectly through his close relatives.

Provided, that the condition given shall not apply to Modarabas which are not involved in the issuance of certificates of Musharakah.

In case of key executives, the Modaraba company must ensure that no key executive shall head more than one functional area that give rise to conflict of interest within the organisation.

For instance, the departments of audit and accounts shall not be headed by the same person.

Further, a key executive shall not hold directorship in his or her personal capacity in a business concern which is also a client of the Modaraba, and in any other financial institution, the SECP added.

Copyright Business Recorder, 2021

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