Law: Securities and Exchange Commission of Pakistan Act, (XLII of 1997)

Section: 40A

Law: Securities and Exchange Commission of Pakistan (Anti Money Laundering and Countering Financing of Terrorism) Regulations, 2018

Section: 3,4,6,7,13

(a) Securities and Exchange Commission of Pakistan Act (XLII of 1997)---

----S. 40A---Securities and Exchange Commission of Pakistan (Anti-Money Laundering and Counter Financing of Terrorism) Regulations, 2018, Reglns. 3, 4, 6, 7 13---Securities Brokers (Licensing and Operations) Regulations, 2016, Reglns. 16(5), 16(9)(e) 16(12)(i)---Penalty for violations of Rules, Regulations, Directives and Notifications---Scope was imposed upon a penalty for assigning incorrect risk rating to its clients; its failure to establish internal audit function; opening a trading account of the immediate family member of the Chief Executive of another brokerage house; its failure to obtain evidence relating to the source of income of nineteen clients; its failure to establish beneficial ownership of six clients and its failure to develop a mechanism to ensure ongoing monitoring of its clientss contention was that the inspection was carried out before issuance of the Securities and Exchange Commission of Pakistan (Anti Money Laundering and Counter Financing of Terrorism) Regulations, 2018 (Regulations), therefore, sufficient time was not provided to understand it and comply with its requirements---Validity---Held; earlier regulatory framework was not materially different in terms of its requirements with the Regulations---Contrary to the assertion of respondent, appellant had established an internal audit department under the Securities Brokers (Licensing and Operations) Regulations, 2016s Chief Executive or his family had not traded through another securities broker rather it was the family member of another securities broker who had traded through the appellant---Memorandum of appeal, reply of the show cause notice and inspection observations were sufficient to establish that the appellant had failed to comply with the mandatory regulatory requirements of the Regulations---Appellate Bench declined to interfere in the penalty imposed through the impugned order--- Appeal was dismissed.

(b) Securities and Exchange Commission of Pakistan Act (XLII of 1997)---

----S. 40A---Penalty for violations of Rules, Regulations, Directives and Notifications---Non-mentioning of specific provisions while providing opportunity of hearing---Effect had violated the requirements of Reglns. 3, 4, 6, 7 13 of the Securities and Exchange Commission of Pakistan (Anti-Money Laundering and Counter Financing of Terrorism) Regulations, 2018 though respondent had not specifically mentioned the aforesaid provisions in the impugned order---Validity---Held; violated provisions should have been mentioned in the impugned order, however, non-mentioning of specific provisions did not vitiate the proceedings when, violations were duly mentioned and established.

ORDER

1. This Order shall dispose of Appeal No. 17 of 2019 filed by M/S MRA Securities Limited (the Appellant) against the Order dated April 8, 2019 (the Impugned Order) passed by the Commissioner SMD (the Respondent) under 40A of the Securities and Exchange Commission of Pakistan Act, 1997 (the SECP Act) read with section 150 the Securities Act, 2015 (the Act).

2. Brief facts of the case are that the Appellant is a Trading Rights Entitlement Certificate (TREC) holder of the Pakistan Stock Exchange Limited (the PSX) and licensed as a securities broker under the Securities Act, 2015. The Joint inspection Team of PSX, Central Depository Company and National Clearing Company of Pakistan Limited conducted an inspection (the Inspection) of the Appellant in September 2018, to assess its compliance with the regulatory requirements contained in the Securities and Exchange Commission of Pakistan (Anti-Money Laundering and Countering Financing of Terrorism) Regulations, 2018 (the Regulations). The Inspection, inter alia, revealed the following:

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