BSEC to change rule to transfer client deposit interest to investor protection fund

In a policy reversal, the securities regulator now proposes requiring brokers to transfer client deposit interest to investor protection fund and market education—contradicting its earlier stance.

The Bangladesh Securities and Exchange Commission (BSEC) has published a draft rule on this for public opinion recently. The commission also asked the market intermediaries to submit their opinion within 12 May.

The draft rule stipulates that interest earned from bank accounts maintained for consolidated customer accounts (CCA) should not be treated as income of the respective stockbroker or dealer.

However, DSE Brokers Association of Bangladesh (DBA) leaders said they will challenge the draft rule, pointing to a 17 December commission decision - made in consultation with the Capital Market Reform Task Force and the DBA itself - that permitted brokers to classify most client deposit interest as income.

According to the draft, 25% of the net interest income—after deducting bank charges—must be transferred to the investors' protection fund of the stock exchanges within 30 days of the end of each financial year.

The remaining 75% must be used for investor education and awareness programmes related to investment. Stockbrokers and dealers are required to report the details of such expenditures and programme activities to the stock exchanges and the BSEC on a quarterly basis, within 10 days after the end of each quarter, read the draft rule.

A Consolidated Customers' Account is a separate bank account maintained by stockbrokers to hold unused funds from their clients' beneficiary owner accounts. 

These funds are strictly to be used only for paying for securities purchased by the client or collecting commissions or fees owed by the client. Any unauthorised use of the funds from the Consolidated Customer Account results in a deficit.

Saifuddin, senior vice president of DBA and managing director of IDLC Securities, told The Business Standard, 'We are very surprised to see the draft rules propose the utilisation of interest on clients' deposits, as this directly contradicts the previous decision. We will oppose such a revised version.' 

"In all countries around the world, the interest income from CCA accounts belongs to the respective institutions. Investors have never claimed it. The current commission had agreed to this in the meeting held last November. It is not understandable why they are now trying to introduce a different rule. We will once again present the facts on this matter to the commission," he added.

A senior leader said, earlier brokerage firms can use the interest as their income, but the Shibli Rubayat Ul Islam led commission issued a directive in 2020 to disburse the interest to the clients. The Shibli-led commission made the decision without consulting with the market intermediaries.

"First, interest income must be classified as 'other income' in accordance with International Financial Reporting Standards (IFRS). Additionally, the NBR deducts 10% tax at source before the interest is even credited to the account. BSEC's decision on this income is contradictory and impractical to implement," he added.