KSE binds brokers to have audit from SBP’s auditors

KARACHI: The Karachi Stock Exchange (KSE) has made it mandatory for all the brokerage houses to get their audits conducted by a central bank’s certified auditor to prove reliability of a broker’s disclosed financial health, an official said.
The KSE, through the amendments into its regulations, binds securities firms to get their statutory audit conducted from an auditor enlisted in the central bank’s panel of auditors.
“The measure has been implemented to ensure transparency, effectiveness and reliability of audits of brokers,” a KSE official said.
The KSE board proposed a number of amendments into the regulations. The Securities and Exchange Commission of Pakistan has approved the statutory audit of brokerage houses.
An auditor must be a chartered accountant firm, and must have a satisfactory rating under the Quality Control Review Program of the Institute of Chartered Accountants of Pakistan to become a member of the State Bank’s panel of auditors.
The audit firm must have experience in conducting statutory/system audits as well as comprehensive investigations of brokerage houses.
Moreover, the audit firm should be on Category-A and Category-B of the State Bank of Pakistan’s panel of auditors.
According to the amendment, the brokers are required to biannually submit a certificate from its last statutory auditor confirming their net capital balance.
The amendment also proposed segregation of clients’ assets by brokers to protect assets of investors through periodic monitoring of asset segregation status.
Accordingly, all the brokers must submit an annual ‘clients’ asset segregation statement’ within 15 days of the close of financial year.
“All trading terminals of non-compliant broker may be switched off,” the KSE’s statement said.
The board further proposed if any director, executive and substantial shareholder or their spouses sell, buy or take any beneficial position in the shares of their company they should immediately notify in writing to the company secretary for further dissemination to the SECP and all concerned.
Substantial shareholder means one who has 10 percent or more shares in a listed company.
The board also proposed that every broker should provide a quarterly account statement to every client within 15 days of a quarter-end to enhance disclosure and ensure proper management of risk and protection of clients’ assets and interests.
“The statement must include cash balances, securities positions as per back office record of the broker, securities positions as per CDS (Central Depository System) record and activity in the account since the last quarterly statement,” the KSE said.