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ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued a comprehensive framework for monitoring and supervision of the accredited warehouses and warehouses operators through the "Collateral Management Company" (CMC).

The SECP has amended the Collateral Management Companies Regulations, 2019, through issuance of an SRO 915 (I)/2020, here on Thursday.

The SECP has introduced the concept of "CMC", which is an agriculture promotion company having the authority to inspect accredited warehouses and warehouse operators.

The CMC shall have the powers to inspect, and examine accredited warehouses and warehouses operators for compliance with the applicable laws, these regulations and the standard operating procedures, pursuant to undertakings given by accredited warehouses and operators given as a condition of accreditation.

The CMC may call for information from, undertake inspection of (itself or through a third-party inspector answerable to it), conduct an inquiry, or audit, any and all warehouses accredited by it, as well as their warehouse operators, the SECP said.

The warehouse shall be owned or leased, operated and managed by a warehouse operator, who satisfies the criteria set out in the standard operating procedures, and the warehousing guidelines, and shall manage and operate the warehouse to the satisfaction of the CMC.

The warehouse operator must submit registered title documents entitling the proposed warehouse operator to ownership and possession of the proposed warehouse, or the terms and conditions of which, permit the carrying on of the proposed business on the premises. In addition, in the case of a registered indenture of lease or sub-lease, the warehouse operator must provide documents, evidencing lease such additional waivers, indemnities, and consents from the ultimate owner of the property, as may be stipulated by the CMC pursuant to the standard operating procedures.

The SECP said that the warehouse is comprehensively insured in accordance with the minimum terms of coverage for incidents including natural disaster, fire, theft, flood, burglary, fidelity and misappropriation, and special perils covering riots, strikes and terrorism and compulsory terms to be included in any policies or bonds of insurance for coverage of a warehouse and the stored produce, as stipulated by the CMC or as may be provided in the standard operating procedures and warehousing guidelines.

The SECP directed that the warehouse operator had to submit an affidavit, and such other indemnities, consents, and waivers, as might be stipulated in the standard operating procedures, and which inter alia, stipulate that he was responsible to the depositor of produce and any holder for ensuring maintenance of quantity, weight and quality of produce that was covered by outstanding warehouse receipts as required by the standard operating procedures and warehousing guidelines.

Warehouse is electronically connected with the CMC and can be connected with the futures exchange as required by the standard operating procedures and warehousing guidelines, and accredited warehouse staff have been trained to input data, and otherwise, manage the EWR issuance and reporting procedures, the SECP said.

The CMC shall prepare Standard Operating Procedures and Warehousing Guidelines (which shall include as annexures, templates for the warehouse accreditation agreement, EWR system user agreement, text of EWR and GRN, warehouse storage agreement, and the agreement between the CMC and futures exchange) in accordance with the applicable laws, and as much as possible, meet the best practices for the accreditation, management and inspection of warehouses and have the same approved by the Commission.

Provided that for the purpose of issuance of Standard Operating Procedures and Warehousing Guidelines, the approval of the commission would only be to the extent of ascertaining consistency across the industry.

The warehouses legally or beneficially owned by a CMC shall be inspected by third-party examiners appointed by the CMC that has accredited such warehouse(s) and such arrangement will be notified to and approved in writing by the commission.

In order to procure the compliance of the warehouse operator with instructions issued under the foregoing provisions, the Standard Operating Procedures, the Warehousing Guidelines, undertakings made by the operator pursuant thereto, other applicable law, or in case it is necessary to take urgent action to protect the interests of depositors of produce, holders, or other interested third-parties, the CMC shall apply to a Court of Law for equitable relief in the form of an injunction or specific performance.

Such action shall be without prejudice to any other legal action which may be appropriate to take, the SECP maintained.

Where a CMC contravenes or fails to comply with any provision of these regulations or is not in compliance with the conditions of registration or any directive issued or order passed by the commission, or it is in the public interest to do so, the commission may, after providing a reasonable opportunity of representation to the CMC, take such actions, suspend or impose such restrictions including on its business as provided under the regulations, standing operating procedures or the Securities and Exchange Commission of Pakistan Act, 1997 or the Futures Market Act, 2016, the SECP added.

Copyright Business Recorder, 2020