ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has amended the regulations of the Karachi Stock Exchange to ensure fairness and transparency in the capital market.

The amended regulations call for selection of auditors for net capital balance, statutory audit and system audit of brokerage firms in the category ‘A’ and ‘B’ of the State Bank of Pakistan panel.

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.

During the inspection of brokerage houses, it was observed that there was a non-compliance of relevant laws and irregularities, such as miscalculation and misinterpretation of net capital balance (NCB) requirement which posed a threat to the interests of investors.

At the same time, inflated NCBs facilitated brokerage firms to take excessive exposure limits for trading purposes, which transferred the same risk to the exchange trading system as financial strength of such brokerage houses was not sound enough.

Moreover, considering the existing practice adopted by other financial sector intermediaries relating to selection of auditors of excellent repute and expertise for statutory audit and other audit assignments, the SECP felt an immediate need to prescribe a more effective criteria for selection of auditors for statutory audit, system audit and net capital balance of the brokerage firms to improve quality of audits, ensure an impartial view and reliability of financial position of brokerage firms.

Under the newly-approved regulations, the same audit firm (from the category A or B of SBP panel) shall be appointed for NCB and statutory audit so as to bring consistency, better understanding of brokerage operations and true and fair view for the regulators and other stakeholders.

Furthermore, the regulation reinforces all listed brokerage firms to only appoint auditors from category A of SBP panel for system audit, whereas category A or B can be appointed for the audits by unlisted brokerage firms.

IOSCO report

Finance Minister Ishaq Dar has commended the Securities and Exchange Commission of Pakistan (SECP) for making a significant progress in adopting the internationally set principles for capital markets.On Saturday, SECP Chairman Zafar Hijazi presented the IOSCO report to Mr Ishaq Dar which recognised that the progress made by the SECP.

Published in Dawn, August 2nd, 2015

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