The Securities and Exchange Commission of Pakistan (SECP) has observed that the segregation of clients' assets is of great essence to strengthen investor confidence for avoiding their misuse by brokers and probable default of the brokerage houses.
In an order issued here by SECP against a broker of Karachi Stock Exchange Limited (KSE) on Tuesday, the SECP has said after a detailed and thorough perusal of the facts, evidence/information available on record, contentions and arguments made by the representatives of the broker during the course of the hearing, it is evident that the broker failed to perform their responsibilities by not maintaining segregation of clients' assets.
The SECP has conveyed to the broker that the segregation of clients' assets is of essence to strengthen investors' confidence and to avoid misuse of clients' assets by the brokers and probable default of the brokerage houses. A broker being custodian of clients' assets is expected to perform his business with due diligence. The Commission, in order to ensure investor protection has drafted a set of rules and regulations which the respondent is expected to comply with.
The violation of the rules and regulations is a serious matter. Moreover, the respondent rectified the identified irregularities highlighted in the inspection report and communicated that it is now compliant with the applicable regulatory framework. Therefore, taking a lenient view, in exercises of the powers under Section 22 of the Ordinance, the SECP hereby impose on the respondent a penalty of Rs 50,000. The respondent is further directed to comply with the Rules 1971 and the guidelines issued in letter and spirit; ensure segregation of clients assets and maintain, separate bank account for the clients' funds; get the KYC and CDD Policy approved from the Board of Directors and submit reconciliation of the bank balance as of September 30, 2014 with that of the payables position along with documentary evidence to substantiate segregation of clients' assets, the SECP added.
The SECP 's Inspection Team submitted the report ("Inspection Report") which highlighted that the broker failed to maintain segregation of clients assets; did not have collateral account; did not have Know Your Customer ("KYC") and Customer Due Diligence ("CDD") Policy duly approved by its board of directors; and was involved in imposition of late payment charges to its clients. The broker agreed to get its KYC and CDD policy approved from its Board of Directors. The broker asserted that it shall ensure compliance with the applicable regulatory framework in future.
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