Sudden inspection in brokerage houses on card, BSEC asks nomination from DSE, CSE, CDBL in joint panel 

With a view to tightening regulatory oversight and enforcing strict supervision, the Bangladesh Securities and Exchange Commission (BSEC) constituted an 8-member standing joint inspection panel to conduct surprise inspection of stock brokers and stock dealers across the country.

The eight-member inspection panel is comprising of members from the regulatory body, stock exchanges and central depository of Bangladesh Limited (CDBL), according to official order of the commission. 

On Monday, BSEC Chairman Masud Khan, speaking at an open discussion titled "The Current State of the Bangladesh Capital Market and Way Forward", organised by the DSE Brokers Association of Bangladesh (DBA) said, "Much has been discussed about surveillance of brokers. A broker may have several types of problems. Some are regulatory in nature, while another is a shortfall in the CCA, which has accumulated over many years.

"When irregularities occur, the commission imposes fines, which is a regular measure. But when there is a major shortfall, simply imposing a fine is not enough. A fine leads to a certificate case, which can continue for a long time.

"We need to adopt a risk-based approach and conduct surprise visits. In some cases, CCA shortfalls were detected, the money was returned, and then withdrawn again. The commission and the DSE have agreed to conduct visits on a regular basis."

Considering past incidents where brokerage houses embezzled client funds using duplicate servers to display fake information, the regulator aims to prevent further misappropriation through surprise inspections.

Capital market investors usually deposit their hard-earned money through brokerage houses into listed shares of the capital market. 

These funds are kept separately in Consolidated Customers' Accounts (CCA), which can only be used to buy and sell shares on behalf of the investors.

However, recent cases show that some brokers embezzled funds from these accounts for personal use, creating severe client deficits. 

This embezzlement has severely damaged investor confidence and discouraged further capital market investment, leading to a steady decline in active investors.

So, now the capital market regulator planned to increase surveillance in to the stock brokers, who were licensed to work for the investors for buying and selling shares of the listed companies also for the its own account. 

The joint panel

As decided by the capital market regulator, a standing eight-member joint inspection panel will be formed, comprising two representatives each from the Bangladesh Securities and Exchange Commission (BSEC), Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE), and Central Depository of Bangladesh (CDBL). 

Each institution will nominate two members to represent them. 

Once formed, the panel will conduct unannounced inspections of brokerage houses to review Consolidated Customers' Accounts (CCAs), regulatory compliance, margin lending rules, and other related issues.

Through a letter to the respective institutions, the reglator sent seprate letters asking nomination of two members in the standing joint inspection panel. 

In the letter, the BSEC stated that the Commission has decided to constitute a standing Joint Inspection Panel for conducting spot/surprise inspections/visits of stock brokers and stock dealers.

The initiative aims to tighten regulatory oversight, enforce strict compliance with securities laws, and safeguard general investors' interests.

According to previous news of TBS, on the day of an inspection, officials will meet at the BSEC office in the morning and select a brokerage from a list of firms identified as potentially risky based on suspicious activities, possible irregularities and other risk indicators.

The inspection team will then be sent to the vicinity of the selected firm before the inspection notice is issued. 

The BSEC will subsequently send a spot inspection letter to the firm's head, after which the team will arrive at the office and begin the inspection.

The procedure is intended to minimise the time available for firms to alter records, manipulate software or conceal irregularities.