Fulfilling one of the major conditions of the International Monetary Fund (IMF), the Securities and Exchange Commission of Pakistan (SECP) has made it mandatory for brokerage firms to get their net capital balance, statutory audit and system audit firms from the category A and B of the State Bank of Pakistan (SBP) panel.
The implementation of the new regulation will help curb the menace of inflated net capital balance (NCB) and will stop misinterpretation of financials. The SECP during the course of its inspections of brokerage houses, various non-compliances of relevant laws and major irregularities such as miscalculation and misinterpretation of NCB requirements were observed which posed serious threats to investors’ interest.
The inflated NCB facilitated brokerage firms to take excessive exposure limits for trading purposes which transferred the same risk to the exchange trading system as the financial strength of such brokerage houses was not sound enough.
Earlier, the KSE framework allowed all audit firms listed on the SBP panel to conduct statutory audit and audit of net capital balance of brokerage firms. Now, under newly approved regulations, the same audit firm from the category A or B of the SBP panel shall be appointed for NCB and statutory audit so as to bring consistency, a better understanding of brokerage operations and true and fair view for the regulators and other stakeholders.