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Jan
24
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Corporate, capital market needs improved regulatory laws
Development of a modern and efficient corporate sector and capital market which is based on sound regulatory principles that provide impetus for high economic growth and foster social harmony in the country is an imperative for the development. This goal can be achieved through a fair, efficient and transparent regulatory framework based on international legal standards and best practices. Such a framework ensures protection of the rights of investors and mitigation of systemic risk aimed at fostering growth of a robust corporate sector and broad based capital market in Pakistan.
Such frameworks are available in different forms across the world. In Pakistan, absence of such a modal was felt since long. In 1997, the Securities and Exchange Commission of Pakistan (SECP) was set up in pursuance of the Securities and Exchange Commission of Pakistan Act, 1997 to fulfil this gap. This Act institutionalized certain policy decisions relating to the constitution and structure, powers, and functions of the SECP, thereby giving it administrative authority and financial independence in carrying out its regulatory and statutory responsibilities. The SECP became operational in January 1999 and has come a long way since then. It was initially concerned with the regulation of corporate sector and capital market. Over time, its mandate has expanded to include supervision and regulation of insurance companies, non-banking finance companies and private pensions. The SECP has also been entrusted with oversight of various external service providers to the corporate and financial sectors, including chartered accountants, credit rating agencies, corporate secretaries, brokers, surveyors etc. The challenge for the SECP has amplified manifold with its increased mandate. It is felt in the corporate sector that the institution is discharging its responsibilities in appropriate manner. However, some circles blame it for failures during the crisis that hit stock exchanges in which people lost billions of their hard-earned money. Here we must understand that in Pakistan, the capital and financial markets as well as the corporate sector is currently being regulated through laws most of which are decades old. The vested interests are trying best to keep these laws intact so that they can derive masses and go scot free. Then there are important areas where no separate substantive laws exist at all, for instance the futures market, the non-banking finance sector, and insolvency and rehabilitation of companies. This fact has necessitated continuous upgrading and amendments of the existing laws for the last decade or so, which the SECP has been following. The SECP’s Law Division in collaboration with the operational department and international consultants has deliberated upon changing the facade of the corporate and capital market regulatory framework. To increase the powers of the Commission and removing the weaknesses of the current law, many new concepts should be introduced like voluntary return and plea bargaining, the establishment of an independent tribunal exercising original jurisdiction on the civil as well as criminal side and also appellate jurisdiction, provisions related to whistle-blowers, liability of shadow directors and alternative dispute resolution mechanisms including the office of an Ombudsman to hear investor complaints. As far as the insurance sector is concerned, it is growing and remained sound despite global financial crisis for which some credit should be given to the regulator. Actually, Insurance law is the name given to practices of law surrounding insurance, including insurance policies and claims. It can be broadly broken into three categories – regulation of the business of insurance; regulation of the content of insurance policies, especially with regard to consumer policies; and regulation of claim handling. The aims of market regulator should be — to prevent cases of market manipulation, such as insider trading, to ensure competence of providers of financial services, to protect clients, and investigate complaints, to maintain confidence in the financial system and to reduce violations under laws. I believe that SECP is discharging duties well and it has boosted efforts to iron things after the new management has taken charge. SECP‘s website is attractive and informative but it should have a prominently displayed icon for complaints and whistle-blowers. Here it may be mentioned that the world of investing is fascinating and complex; it can be very fruitful. However, unlike the banking where deposits are guaranteed by the federal government, stocks, bonds and other securities can lose value. There are no guarantees. That is why investing should not be taken lightly. The best way for investors to protect the money they put into the securities markets is to do research and ask questions.
