The unregulated regulator

It’s been more than a week since the Supreme Court-anointed Joint Investigation Team (JIT) submitted its findings on the Panama Papers disclosures related to Prime Minister Nawaz Sharif’s family’s offshore assets. Whilst every analyst or group is offering their prognostications on what will happen next, the most interesting outcome of the three-month long circus was the sensational exposé on the working of Pakistan’s corporate sector regulator. The head of the Securities and Exchange Commission of Pakistan (SECP), Zafar Hijazi, is currently trying to save his name from being besmirched by allegations that he ordered the tampering of records of companies belonging to the Sharif family. Whilst it is egg on the face of the chairman, it casts a long shadow on a regulatory body whose job is to promote corporate culture. I believe it is the failure of the entire commission and its commissioners to perform their respective duties. Governments, unfortunately, are in a habit of not paying heed to what the courts have pronounced — and the nation often ended up paying for their indiscretion. Let us turn our minds back to 2013 when the Supreme Court had given certain directions in the Ashraf Tiwana case regarding the appointment of SECP commissioners. The judgment simply required the appointment of regulators who could work independently and objectively without fear or favour. Yet it was not applied in letter and in spirit by the Ishaq Dar-run finance ministry and perhaps that is why the SECP is facing a credibility crisis.

So should regulatory bodies be under the control of any ministry? I have been representing corporate clients in various legal cases for almost a decade now. A general complaint relates to the high-handedness and empty-mindedness of the SECP officials. There are scores of registered entities with the SECP, comprising the corporate sector, capital markets, insurance companies, modarabas and non-banking finance corporations (NBFC), but their focus of attention is the 500+ listed companies and less than 200 members of the brokerages dealing with them through the stock exchange.

One wonders how much the corporate sector has grown over time that the entire focus of SECP is on the stock exchange and the brokers’ community. The answer is possibly simple: a “slight” increase in stock prices is given the name of manipulation and a “correction” is termed a crash by our regulators. They contact companies’ managements and inquire why stock prices are rising, assuming that there is collusion only. It is quite possible that the SECP itself does not believe that our capital market — which is a broad indicator of the overall economy — should have been added to the emerging markets index.

The regulatory body looks to thrive on “crashes”, without ever looking to get to the bottom of a problem. We have had the 2005 “crash” and then the 2008 “financial crisis”. Has anyone ever asked why the SECP has been reactive rather than proactive? Being a regulator, it should also be the first line of defence by providing liquidity to the market, something which the State Bank of Pakistan does and has provided to its regulated entities in each and every crisis. Of late, the SECP has caused more jitters to the markets by its actions. It has targeted certain individuals and their sponsored companies but ignored the shenanigans of others. It summons investors asking them why they invested in IPOs of certain companies at a certain price, without having to answer that it was the SECP’s arbitrary action on the book building that allowed prices to be manipulated by some actors. So who will question the regulator for its wrong actions?

Coming to the matter on which the SECP is in hot water, it is a confirmation of the thesis that the SECP only focuses on the capital markets or small companies while everyone else under its nose has a ball of a time in defrauding people and institutions. The Hon’ble Sindh High Court in its judgment in the case of Al Abbas Sugar reported at 2014 CLD 52 had castigated SECP for not doing its job and being selective in its regulation but all such directions have so far gone in vain.

All the companies related to the Sharif family were largely private limited companies which borrowed large sums of money from banks and then wilfully defaulted on the pretext of losses. While the Sharif family and its supporters claim, however, one cannot deny that funds went out of Pakistan through money laundering process and assets in foreign lands were procured. This is not just true for the Sharifs. Every other “industrial” group has plundered Pakistan’s banks and state exchequer in the form of loans and unpaid taxes. Shahidur Rahman’s 1997 book Who Owns Pakistan tells us who and how Pakistan is owned by a select few.

The SECP was established in 1997, superseding the Corporate Law Authority, had a perfect chance to do things the right way. Instead it has acted as a reactionary force, targeting a select few whilst letting the water flow endlessly under the bridge. It is high time that people with pristine reputation, impartiality, objectivity and integrity are appointed in regulatory authorities so that the purpose of such regulatory authorities is genuinely served.

While the result of the Panama Papers investigation by the Supreme Court is awaited, there has to be a concrete effort by all the major political parties to focus on the way our regulators like the SECP have been operating. Imagine it is the investigation of the Sharif family which has taken the SECP chairman to court and scurrying away for protective bail. Imagine what would happen when a proper investigation takes place against all the entities that own offshore assets without declaration and presumably through ill-gotten money siphoned off out of Pakistan. Whatever is happening at the SECP may be nothing less than divine justice for the injustice the SECP has done to some.

Published in The Express Tribune, July 23^rd, 2017.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.