The Securities and Exchange Commission of Pakistan (SECP) has ruled that the Policy Board of the Commission does not involve in day-to-day operations of the SECP. This ruling has been given by the SECP Commissioner Securities Market Division Aamir Khan in an order issued against an asset management company (AMC) for alleged violations of the Non-Banking Finance Companies and Notified Entities Regulations, 2008 (the "Regulations").
The SECP commissioner further ruled, "The Chairman of any company cannot be held responsible for the negligence of the chief executive officer (CEO) and his team."
According to the SECP order, the main objective of the Policy Board of the Commission is to provide guidance to the Commission in all matters relating to its function and formulate its policies in consultation with the Commission. Though SECP''s organisational chart shows the Policy Board as having a direct hierarchical relationship with the commissioners, it is only to the extent of its mandate mentioned above and does not imply the involvement of the Policy Board in day-to-day operations of the SECP. Henceforth, there is no inherent conflict of interest that can prejudice the proceedings of this case, the SECP order added. The SECP Commi-ssioner has examined the facts of the case, written responses submitted along with documentary evidences, arguments put forth by the Respondent (AMC) during the course of hearing and the relevant regulatory requirements. The SECP is of the view that the arguments submitted by the company are not tenable on the following grounds:
Firstly, the chairman of any company is primarily responsible for the policy level matters and providing long-term vision and direction to the company. He is not the administrative/operational head of the company and in no way is responsible for its operational matters. A chief executive officer is appointed for the purposes of administrative issues, and is responsible for managing the company with respect to its operational matters. Henceforth, the Chairman of any company cannot be held responsible for the negligence of the chief executive officer and his team. The same holds good for existing Chairman Policy Board, who although being the erstwhile chairman of AMC at that time, cannot be held responsible for the disregard of the company''s operational policies by the former CEO and his team. As such, the fact that he was the erstwhile Chairman of company has no bearing in this particular case.
Reference is made to section 181 of the Companies Act 2017, which stipulates that independent and non-executive directors shall be held liable, only in respect of such acts of omission or commission by a listed company or a public sector company which had occurred with his knowledge, attributable through board processes, and with his consent or connivance or where he had not acted diligently. In this instance, the AMC is neither listed company nor a public sector company. Henceforth the argument that carrying out an impartial investigation by SECP is impossible when the current SECP Policy Board Chairman was in fact the former Chairman of AMC at the time of violation is not plausible, SECP Commissioner added.
During the hearing, the SECP''s own organisational structure shows the SECP Policy Board as having a directly hierarchical relationship with the Commissioners. Hence, this renders the SECP incapable of performing an impartial inquiry. Therefore, the SECP should relinquish jurisdiction to a court of competent jurisdiction, company claimed.
The SECP Commissioner Securities Market Division concluded that the arguments provided by AMC are not tenable owing to the reasons mentioned. The arguments are frivolous and tantamount to an attempt by the AMC to place unnecessary pressure on SECP and prejudice the outcome of the proceedings in the matter.
Based on my observation, the SECP Commissioner is of the view that, leniency on non-compliance towards requirement of NBFC Regulation 38 (1)(a), 38(2)(b),38(2)(l) and Circular 26 of 2015 is not possible as safeguarding the investors'' interest is the paramount and supreme objective of the SECP, Commissioner observed.
Therefore, the SECP hereby conclude the proceedings initiated under section 282J (1) read with section 282M (l) of the Companies Ordinance by imposing an aggregate fine of Rs l,000,000 on the AMC. Moreover, in exercise of powers conferred under Section 282D of the Ordinance, the SECP hereby direct the AMC to make good the investors'' losses since the losses have been caused due to the fraudulent as well as irresponsible conduct of the AMC''s employees'', and in terms of NBFC Regulation 38(2)(b),the AMC is responsible for the acts and omission of all persons whom it may delegate any of its functions.
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