Irregularities: SECP fines brokerage house for misusing client funds
The Securities and Exchange Commission of Pakistan (SECP) has imposed a penalty on Standard Capital Securities, a Karachi-based brokerage house, for failing to maintain the segregation of clients’ assets.
In an order made available to the public on Tuesday, the SECP imposed a fine of Rs100,000 on Standard Capital Securities for failing to maintain proper books of accounts and imposing undue late payment charges on clients.
The SECP imposed the penalty following a show-cause notice issued to the brokerage on April 29. An SECP inspection of the books and records, which are required to be maintained by the brokerage house, revealed irregularities in the calculation of net capital balance at the end of fiscal year 2013.
Moreover, the inspection report revealed that the brokerage did not have Know Your Customer and Customer Due Diligence policies duly approved from its board of directors.
In their response to the show-cause notice, representatives of Standard Capital Securities “assured future compliance” while accepting that it “did not properly follow the accounting principles” in this case.
While accepting that the brokerage house was “involved in imposing late payment charges on its clients,” they added that the practice ended after November 2013.
“It is evident that the respondent was involved in using clients’ funds for either financing the debtors from the money of other clients or for its own investments and/or other purposes in violation of the Karachi Stock Exchange regulations,” said SECP Director Imran Inayat Butt.
“This specifically requires the respondent to maintain separate bank accounts for clients and ensure that the funds deposited by the clients in its books are available in the bank account tagged for clients’ funds,” wrote Butt in his detailed order.
He added it was clear that the brokerage house funded investments worth Rs7 million from clients’ funds that implies its involvement in the misuse of clients’ assets.
“Segregation of clients’ assets is vital for the protection of investors’ assets… the failure of the respondent to maintain the segregation of clients’ assets is harmful and detrimental to the interests of its clients,” Butt said while imposing the penalty on the brokerage house.
Published in The Express Tribune, July 9th, 2014.
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