Financial information via FRS: SECP Bench halves penalty on TREC holder/broker

An Appellate Bench of the Securities and Exchange Commission of Pakistan (SECP) has reduced penalty from Rs 300,000 to Rs 150,000 on a Trading Right Entitlement Certificate (TREC) holder/broker who failed to submit its financial information through the online Financial Reporting System (FRS).
According to an order issued by the two-member SECP Appellate Bench here on Tuesday, the Commission vide Circular No. 4/2013 dated 16/04/13, in exercise of powers conferred under section 6(3) of the Securities and Exchange Ordinance, 1969 (Ordinance) read with Third Schedule of the Brokers and Agents Registration, Rules 2001 (Brokers Rules) directed all TREC holders/brokers to submit their financial information through the online Financial Reporting System (FRS), within 30 days of the close of each quarter. Pursuant to aforesaid directive, the TREC holders were required to submit their financial information online through FRS since the quarter ended on 30/09/16. The Commission also arranged the awareness and training sessions for the TREC holders on FRS in Islamabad, Lahore and Karachi. The basic purpose of sessions was to give awareness to the TREC holders on FRS and provide them guidance for filing of their returns. The Commission directed the stock exchanges to ensure that all TREC holders must submit their financial returns to the Commission through the online reporting system within the stipulated time limit and the stock exchanges disseminated the said direction of the Commission on their websites for information and compliance by the TREC holders. Despite all efforts, a broker (appellant) failed to file the financial information.
It was evident that the appellant had failed to discharge its regulatory obligations and violation of the directive given through Circular No. 4/2013 dated 16/04/13, issued in exercise of powers conferred under Section 6(3) of the Ordinance read with the Third Schedule of the Brokers Rules was established. Therefore, in exercise of the powers under Section 22 of the Ordinance, a penalty of Rs 300,000 was imposed on the appellant by SECP. The appellant was further directed by respondent No.1 to file all overdue financial returns through FRS within 30 days from the date of the Impugned Order and to ensure strict compliance with the regulatory framework in letter and spirit, in future.
The appellant preferred the instant appeal on the grounds that, the Brokerage House is inactive and the Company has no KATS Terminal workstation. The Appellant argued that the old FRS password had expired due to inactivation of the account and subsequently in this regard had written emails to the help desk of the Commission, but did not receive a proper reply. The appellant further argued that they have submitted all previous as well as current FRS on the website of the Commission, when the password was renewed and the penalty, therefore, is exorbitant in nature and needs to be revised.
The SECP officials rebutted the arguments of the appellant on the grounds that the Commission's IT system/server was in order and working effectively as almost 300 brokers had filed 4300 returns to the Commission from 2013 until 2017 and they were not facing any issue of a server error. Moreover, the respondents argued that the Commission had given necessary awareness/guidance to TREC holders for filing of their returns and online sessions were held in June-July 2015 and March 2016 and the appellant was required to sort out technical issues if any. Furthermore, the respondent argued that they had given ample opportunities to the appellant even after issuance of SCN dated 30/12/16 but the appellant did not file the requisite returns. Therefore, the respondent argued that violation of the said direction was established and in exercise of the powers conferred under Section 22 of the Ordinance, and penalty was imposed on the appellant through the Impugned Order.
Two-member SECP Appellate Bench observed, "We have heard the parties i.e. the appellant and respondents at length and perused the relevant record. The appellant has argued that due to inactivation of account their FRS password had expired and subsequently there was no way for them to submit their financial information online and they received no assistance from the help desk of the Commission. The appellant, however, submitted all previous as well as current FRS on the website of the Commission when the password was renewed. The appellant further argued that the penalty imposed on the appellant is exorbitant in nature and needs to be revised. The respondents have argued that the Commission's IT system/server was in order and working effectively. Furthermore, the respondents argued that the appellant had been given ample opportunities and time to sort out any technical issue even after issuance of the SCN dated 30/12/16, however, the appellant failed to discharge its regulatory requirements. We are of the view that despite providing ample opportunities, there is no justification for failure to comply with regulatory requirements on behalf of the appellant.
In view of the above, the Impugned Order is upheld as the violation of Brokers Rules has been established."
The bench has also noted, however, that the appellant has subsequently complied and submitted all previous and current FRS. "Taking a lenient view, therefore, we hereby reduce the penalty to 150,000 and in case of similar non-compliance in future, strict action shall be taken against the appellant, in accordance with the law," the two-member SECP Appellate Bench order added.