KARACHI (December 15 2003): Dr Tariq Hassan, Chairman, Securities and Exchange Commission of Pakistan (SECP), has said that regulatory plans to complete the process of demutualisation by middle of next year and to speed it up a committee would be formed comprising international as well as local experts.
“We want to have good corporate governance and demutualisation rules at par with international practices. For this, the SECP will hire international experts along with local participants so that demutualisation after enactment may not trip,” he said on Saturday in an interview to the editorial board of Business Recorder.
He appreciated the work of Dr Ishrat Hussain, Governor, State Bank of Pakistan, in finalising the draft of rules for margin financing. Slowly and steadily the SECP wanted to eliminate the badla financing which, on a number of occasions, was the main factor behind the stock market slide.
“Soon, I will have a meeting with the Chairman of Central Board of Revenue to rationalise the tax structure, not to reduce levy but to take the single-member company to a graduated level. “SECP wants to provide maximum incentives to companies within the prescribed law to make the corporate sector more vibrant,” said Dr Tariq Hassan.
“Recently, I had a meeting with the representatives of Institute of Chartered Accountants to activate the investigations against auditors for their misconduct,” he said, adding, “we wanted to have self-regulatory organisations (SROs) help alleviate the level of auditors and required rating.”
The main objective is that, on the second tier level, the corporate sector should be cleansed through rating of the company so that one could detect the health and second the auditors' report, he pointed out.
He discussed a number of issues under the domain of the SECP and to improve its performance up to international standards.
He said: “We want to keep pace with the development instead of digging up the past mistakes, but it certainly needs time as SECP is still going through internal restructuring.”
He said that SECP's role was half monitoring and enforcement and half development work.
Dr Hassan said: “The SECP plans to pursue the gradual replacement of badla financing by margin financing and setting up of an 'Institute of Corporate Governance' by the end of January through which the 'Code of Corporate Governance will be fully implemented.”
He said the issue of 'Commodity Exchange' was dead when he took charge as Chairman of SECP but now he has reactivated it. “We expect that 'Commodity Exchange' will start operation by middle of next year.”
He agreed with a suggestion that there should be some check on auditors also, as their reports are the base for judgement of SECP and its actions depend on auditors' report.
He said a separate 'policy division' has been created to keep in touch with chartered accountants and also with the rating agencies.
He said he held meetings with the Institute of Chartered Accountants members and advised them to check the performance of auditors. He said: “The ethics are not different for auditors, and ICAP assured me to follow the code of ethics.”
He said that there should be institutionalised mechanism to replace the current Badla mechanism, and banks have been given a chance to institutionalise it.
He was highly critical of banks for were delaying repayment to the investors of OGDC. However, he said “there is no law for holding of the investors' money for 20 days but after 20 days it should be returned.”
He said that only small banks were holding repayment and they should be barred from transactions from next time when new scrips would be launched.
Talking about issuance of licence to a company which is not working, he was of the view that once a company stops function, its licence should not be renewed.
Similarly, on the issue of difficult process of winding up of a company in the country, Dr Hassan said: “We allowed easy exit but there are various types of winding up, like merger, so it needs different treatment.”
However, he said, “we have asked courts to provide justice with specialisation in company laws and asked to provide specialised advocates in company affairs to deal with liquidation or winding up procedures.” He said in many cases, “we encourage out of court settlement” of companies.
He said: “The stock market is the frontline regulator and we are sitting on the back seat. They have the full liberty to set up laws pertaining to listed companies and we are here to support them as they are near to market players.”
Dr Hassan said: “The SECP does not yet have a policy framework in place for the (non-bank) financial sector or any of the sub-sectors, and I plan to commission studies on non-bank financial companies, insurance and the securities market to identify issues and formulate policies which can tie in with State Bank's cohesive plans and ultimately into the government's economic policies.”
During the last three months, Dr Hassan said he has spent a substantial amount of time on internal reorganisation of SECP in order to create real institutional strength. “There was a lot of ad hocism and a real policy vacuum,” he said.
He said that he reorganised the divisional structure at the Commission and created the 'Professional Services & Policy Division' to monitor chartered accountants, legal services and rating agencies. “This didn't exist and we needed to establish this function,” he added.
He said that after completing restructuring at the top level, he was now working on restructuring, all the way down the rest of the levels.