EDITORIAL (March 09 2010): According to many, this newspaper, in its Monday's issue, has downplayed a news item wherein the Commissioner (Legal) Securities and Exchange Commission of Pakistan (SECP) had levelled some serious charges against the Chairman SECP. The reason behind our editorial judgement in relation to this news item, however, was simple: any sensational display of the news item would have caused even greater harm to the regulatory body's image.

This cautious approach was based on the premise that a tarnished image of an institution established for the general good of the investing public would require a strenuous effort of rebuilding and would seriously compromise the regulator's writ. Unfortunately, however, the SECP, over the years, has become a less effective body and now it is virtually dysfunctional.

Under the circumstances, there is very little the chairman of the Policy Board (the Federal Finance Secretary) or even the entire board can do with regard to the charges leveled by S. Tariq A. Husain against Salman A. Sheikh. The law does not provide for the suspension of a member of the SECP. Sheikh as Commissioner non-bank financial institutions (NBFIs) and Husain as Commissioner (Legal). The Finance Secretary can, however, approach the appointing authority, ie, the Prime Minister, to constitute, as clearly and unambiguously provided in the Commission of an Inquiry Act, an inquiry body to ascertain the facts.

In addition, in all three cases cited by the Commissioner (Legal) - proceedings under the Act need to be strictly pursued so that the accused regulatees, at least, are afforded a fair opportunity to clear their names, otherwise the issue would stigmatise their reputation for all times to come. Similarly, the easy way out for both the chairman and the commissioner would be to resign forthwith. But this course is not without some pitfalls: it would deprive them of an opportunity to clear the charges that they have levelled against each other.

But things must not end here. The SECP needs to be reorganised and reactivated without any further loss of time. At present, there are only two commissioners and both are at loggerheads. The third Commissioner Securities Management Division Sohail Diyala has resigned. His appointment, last year, was questioned by the corporate regulatees, although, the brokers' community was quite happy as they regarded him as one of them - with deep understanding of capital market dynamics.

However, he failed to get the proposals, agreed by him with the Karachi Stock Exchange, approved by the Commission. If the Commissioner (Legal) was raising legal objections to these proposals, then he should have been asked to provide solutions for them as well. This is how issues of the legal and audit luminaries are appropriately dealt with by those entrusted with functional responsibilities.

The government has not approved the nomination of the Commissioner Company Law Division while the post of Commissioner Insurance Division is also vacant. The SECP is primarily faced with major capacity-building issues. Their inability to induct and retain the right resource stems from the fact that it does not have its headquarters in Karachi where most regulatees operate and a pool of resources is available.

The Prime Minister would be well-advised to order an immediate inquiry into the SECP affairs. The inquiry body could consist of past commissioners having deep understanding of the SECP law; workings of the commission and also its shortcomings. The report from such a body would be expected to be speedy and effective. A judicial investigation would take much longer time to reach any conclusion. Moreover, it will hardly serve any meaningful purpose. An incapacitated regulatory body is absolutely meaningless and profoundly undesirable.

Copyright Business Recorder, 2010