The Bangladesh Securities and Exchange Commission (BSEC) is planning to conduct phased inspections of around 100 brokerage firms as part of its efforts to prevent major irregularities and strengthen investor protection amid rising trading activity in the capital market.
BSEC Chairman Masud Khan recently said at a meeting that the regulator has undertaken several reform initiatives to improve oversight of brokerage houses. As part of these measures, the commission is introducing regular and more frequent audits and inspections to detect and prevent serious misconduct before it escalates.
According to BSEC officials, the commission has already approved inspections of the first 10 brokerage firms. The inspections will examine their overall operations, compliance with securities laws, the safety of clients’ funds and securities, and other relevant regulatory issues. Each inspection team has been instructed to submit its report within 30 working days.
Speaking to The Business Standard, BSEC Executive Director and spokesperson Abul Kalam said, “The commission has already approved inspections of 10 brokerage houses. Its primary objective is to prevent major irregularities before they occur.”
He said trading has increased significantly since the new commission assumed office and investor confidence has gradually improved. As market activity expands, the commission believes there is a greater risk that some market participants may attempt to engage in irregular practices. “We want to strengthen supervision so that investors do not suffer losses due to misconduct at brokerage firms,” he added.
According to BSEC sources, the eight brokerage firms selected for routine inspection are Howlader Equity Services, International Leasing Securities, Ershad Securities, R Chowdhury Securities, Shyamol Equity Management, Vision Capital Management, SAR Securities, and MAH Securities. In addition, Azam Securities and Synthia Securities will be inspected as part of their licence renewal process.
The inspections will review brokerage and dealer operations, compliance with securities laws and regulations, the status of consolidated customer accounts (CCA), and any other issues deemed relevant by the regulator. Inspection teams will also assess firms’ compliance with anti-money laundering and counter-terrorism financing (AML/CFT) requirements.
Regulatory officials say technology-based surveillance has been strengthened in recent years, but on-site inspections remain essential to verify the actual condition of brokerage firms. Particular emphasis will be placed on the management of clients’ funds and securities, record-keeping practices, and the effectiveness of internal control systems.
To enhance oversight, the BSEC has recently made it mandatory for brokerage houses to use uniform and uneditable back-office software supplied by approved vendors. The system is designed to prevent manipulation of back-office data and ensure that the actual status of clients’ funds and securities can be monitored directly by the stock exchanges.
According to the regulator, combining technology-driven supervision with regular inspections will improve accountability and strengthen governance across the brokerage industry.
Market participants note that previous inspections and investigations uncovered various irregularities at some brokerage firms, including the misappropriation of clients’ funds and securities, unauthorised trading, commingling of client and company funds, violations of margin lending rules, misuse of omnibus and consolidated customer accounts, and accounting irregularities.
Other issues identified over the years include failure to comply with KYC requirements, weak implementation of AML/CFT rules, poor record-keeping, non-compliance with net capital requirements, submission of inaccurate information to regulators, delays in resolving customer complaints, and weak internal controls.
In some cases, allegations of market manipulation, wash trades, circular trading, and misuse of insider information have also come under regulatory scrutiny.
However, BSEC officials stressed that these irregularities are not representative of all brokerage firms. They said the inspections are intended not as a punitive exercise, but as a preventive measure to identify risks early, improve compliance, and better protect investors.
The importance of stronger oversight has become evident following several high-profile brokerage scandals in recent years that resulted in significant investor losses.
According to the Dhaka Stock Exchange (DSE), Tamha Securities Ltd misappropriated Tk139.67 crore by illegally using additional software and providing fake investment information. The amount included Tk92.57 crore in cash and Tk47 crore in securities, while around 720 complaints involving Tk52.39 crore were filed against the firm.
In June 2021, the DSE suspended Banco Securities Limited after detecting a Tk128 crore shortfall in its consolidated customer account, comprising Tk66.11 crore in cash and Tk61.97 crore in securities.
Crest Securities Ltd abruptly shut down its operations without prior notice. A DSE investigation later found a Tk65.30 crore deficit in its consolidated customer account. The brokerage was linked to 6,480 complaints involving 21,180 BO accounts, while only Tk1.32 crore of Tk48 crore in investor claims has so far been settled.
The DSE also suspended Shah Mohammad Sagir & Company Ltd after discovering that it had misappropriated Tk13.74 crore. The firm faces 4,187 complaints, with 1,081 investor claims still unresolved.
Meanwhile, Moshihor Securities allegedly misused Tk161 crore, including Tk68.58 crore in investors’ cash and Tk92.35 crore worth of investors’ shares, while reportedly evading regulatory oversight through multiple servers and databases.
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