The Bangladesh Securities and Exchange Commission has observed that a provision in the Bangladesh Bank’s draft guidelines on external audit of banks is inconsistent with the exiting securities rules.
The BSEC made the observation at a recent meeting with BB officials.
According to the section 23(1) of the draft guidelines, before finalising the audited financial statement (of a banking company), a tripartite meeting will be held among Bangladesh Bank, the bank concerned and the external auditor.
A BSEC official said that the commission might raise the issue at a coordination meeting of the financial regulators including the BB scheduled to be held on Monday.
The capital market regulator apprehends that the provision may create scope for leakage of price sensitive information and result in insider trading of bank shares.
Insider trading is the buying or selling of a security by someone who has access to material non-public information about the security. It is illegal when the material information is still non-public. Trading shares with special knowledge is unfair to other investors who don’t have access to such information.
The BB this year has proposed the guidelines with focus on function of external auditors of banks to improve quality of external audit. The guidelines have been drafted based on Financial Reporting Act, 2015 in light of the principle 27 of the Basel Committee’s core principles.
The guidelines will be finalised after taking public opinions deadline for which is October 18.
According to the draft guidelines, tripartite/quadripartite meeting will discuss issues mainly related to asset quality and provisional figure of provision requirement, results of the annual audit, presentation and content of the annual accounts, identified weaknesses in internal controls, detection of irregularities and/or frauds, and compliance with legal and other prudential requirements.
BSEC officials, however, find that the provision is inconsistent with the section 19 of Securities and Exchange Ordinance, 1969 and the rule 3 of Securities and Exchange Commission (Beneficiaries business prohibition) Rules, 1995.
As per the section 19 of securities ordinance, no person shall, except with the permission of the commission, communicate or otherwise disclose to any person
not legally entitled thereto any information which has been entrusted to him or which he has obtained or to which he had access in the course of performance of any functions under this ordinance.
On the other hand, the rule 3 of beneficiary business prohibition rules also disallows any beneficiaries to share price sensitive information with others.
At the meeting with BB officials, BSEC officials said by definition BB’s banking inspection department is not treated as insider although, under the proposed guidelines, they will get price sensitive information of all listed banking companies as like beneficiary.
They also said there is high possibility of occurring insider trading using the undisclosed price sensitive information because the area and the trading of securities of the persons are out of regulation or coverage by securities laws that prohibit insider trading.
Asked, BSEC executive director Saifur Rahman told New Age, ‘We are concerned about the issue.’
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