The cases of ''insider trading'' on stock exchanges would be treated as criminal offences under the Anti-Money Laundering (AML) regime as per draft Securities Act yet to be passed by the incumbent government. Sources told Business Recorder on Tuesday that the SECP should have two options to deal with the cases regarding ''insider trading'' under the draft Securities Act.
If the commission intends to initiate administrative proceedings, then the same can be done by the SECP. Secondly, if the commission wanted prosecution in the cases of ''insider trading'' the same could be treated as criminal offence. Both the options should be available with the SECP to either initiate administrative proceedings or criminal proceedings to effectively tackle the offence of insider trading. The insider trading is a ''hybrid offence'' which needs to be handled in both ways the said proceedings.
Sources said that at present the law is under consideration of the Finance Ministry. The draft Securities Act was discussed during the National Assembly Standing Committee on Finance during the tenure of previous government. Now, the whole process of vetting and clearance from the parliamentary committees would be repeated under the new government.
The SECP had proposed inclusion of ''insider trading'' on stock exchanges as a criminal offence in the draft Securities Act which would replace the Securities and Exchange Ordinance, 1969. The SECP is responsible to strengthen Anti-Money Laundering (AML) regime in Pakistan in areas under its ambit including; NBFC, brokers, insurance companies and the NPO sector.
It liaises with the Ministry of Finance, the Financial Monitoring Unit (FMU), and the Asia Pacific Group (APG) to deliberate on international AML requirements and assist in implementing the measures. The SECP significantly contributed to drafting the Pakistan National Strategy for AML/CFT regime, which ensures effective implementation of the AML action plan agreed upon by all stakeholders. The strategy aims at reforming legal framework of AML/CFT; improve reporting, regulatory and disclosure regime, identify AML/CFT risks and improve capacities and skills of stakeholders requiring the SECP to effectively implement the AML/CFT regime.
The SECP made full compliance with the implementation of the recommendations identified within NBFCs, brokers and insurance sector, by Pakistan''s Mutual Evaluation (ME) on AML/CFT regime, jointly conducted by the APG and the World Bank in 2009. The specific measures implemented include issuance of guidelines/circulars on Client Due Diligence (CDD)/Know Your Customer (KYC) for both brokerage firms and
insurance sector, changes in the inspection manual and conducting regular inspections with regards to AML. Under the new guidelines, brokers and insurance companies are required to take reasonable measures for establishing the source of wealth and source of funds for high risk customers and also to obtain sufficient information to determine the expected source of funding for the account. Guidelines further reinforced STR reporting requirements for compliance and the same has been made part of SECP''s inspection manual and exchanges'' system audit regulations (for brokerage firms).
The SECP being a member of AML Law Review subcommittee, contributed to the process of amendments/revision of the AML Act. In light of the recommendations of the APG and Regional Review Group (RRG), SECP proposed to include ''insider trading'' as a criminal offence in the draft Securities Act that on promulgation will replace the Securities and Exchange Ordinance, 1969 (SEO 1969), sources added.
In the past, during the National Assembly Standing Committee on Finance held in December 13, 2011, the SECP suggested to change criminal penalty to civil penalty for charging a heavy fine, speedy recovery and implementation of other administrative/enforcement actions in capital markets as it is very difficult to prove ''insider trading'' in criminal law.
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