SECP issues show-cause notice to PRCL directors, ex-CEO

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued a show cause notice to the Pakistan Reinsurance Company Limited (PRCL)’s board of directors, and former Chief Executive Officer over alleged violations in his appointment, qualifications, and pay package approval.

The SECP’s Adjudication Department, in its notice said the state-run reinsurer and its board had contravened multiple provisions of the Companies Act, 2017, the Insurance Ordinance, 2000, and the Public Sector Companies (Corporate Governance) Rules, 2013, by appointing the CEO without following due process and subsequently approving a compensation package (which allowed the CEO to draw Rs355m in 32 months) far exceeding that sanctioned by the federal government.

According to the notice, PRCL’s Board of Directors in its meeting on September 27, 2021, appointed the individual as Acting CEO without obtaining the government’s concurrence or evaluating him under the prescribed “fit and proper” criteria. At that time, he reportedly did not possess the required five years of experience as a Key Officer in the insurance industry- having only about three years and four months of relevant experience- in violation of SECP’s Sound and Prudent Management Regulations, 2012.

The Commission observed that even after the government formally appointed him on August 18, 2022 as CEO in SPPS-III pay scale with a salary of Rs500,000 per month, the PRCL Board approved a series of unauthorized enhancements to his pay and privileges at its 169th meeting on August 19, 2022.

The additional benefits approved by the Board, according to SECP, included:

Ten fixed bonuses annually, each equal to one month’s salary, and an additional performance bonus;

Severance pay of four gross salaries for every completed year of service;

Gratuity equivalent to two months’ gross pay (including allowances) per year of service;

Increments and pay revisions at the rate of Rs249,500 per year;

Company-maintained accommodation and medical facility;

Official car with fuel (Car/PoL), Leave Fare Assistance, and recreational leaves with full pay;

Reimbursement of membership fees of professional bodies and a one-time club membership at two clubs anywhere in Pakistan, including monthly subscriptions;

Mobile and internet allowance of Rs15,000 per month or actual usage;

Children’s education reimbursement, home furnishing allowance up to one month’s pay, and personal entertainment expenses; and

All other allowances, perks, and entitlements previously approved for the CEO post.

The SECP said these benefits were “clearly over and above” the SPPS-III package approved by the federal government and therefore in violation of Section 188(2) of the Companies Act, which reserves the authority to fix the CEO’s terms and conditions exclusively with the government.

The regulator further alleged that the curriculum vitae (CV) submitted by the company to the SECP in August 2022 falsely claimed that the individual had five years of Key Officer experience. Later correspondence from two PRCL directors confirmed he had only a little over three years, leading the Commission to conclude that false information was willfully submitted, a violation of Section 158 of the Insurance Ordinance, 2000.

The notice issued to six Board Directors, who have been asked to respond within 14 days and explain why penal action should not be taken.

Under the cited provisions, penalties may include fines of up to Rs5 million, daily fines for continuing contraventions, and disqualification from serving as a company director or CEO for up to five years.

PRCL, incorporated in 2000 and majority-owned by the Ministry of Commerce, is Pakistan’s sole state-run reinsurance entity and a listed company on the Pakistan Stock Exchange.