SEC Chairman, Faizal Salieh, along with top officials of the SEC and the CSE, held a productive engagement with the stockbroker community recently to discuss vital matters concerning the industry.
The meeting which brought together owners and Chief Executive Officers of stockbroker firms was aimed at enhancing regulatory compliance, promoting healthy market practices and ensuring industry sustainability.
Salieh underscored the significance of having strong governance structures and the minimal governance standards that would apply to market intermediaries from July 4, 2023, with a six-month transition period to fully comply.
To ensure Board independence and impartiality during a conflict of interest, all market intermediaries (including stockbrokers) are required to have minimum of three Directors of whom at least one shall be a Non-Executive Director. Where the roles of Chairman and CEO are combined, an Independent Non-Executive Director shall be appointed as the Senior Independent Director (SID) with powers equal to the Chairman enshrined in a Board approved policy and Terms of Reference, so that intervention by the SID is facilitated during Board proceedings where there is a perceived conflict of interest.
To ensure that the industry offers sound client service, the quality of Registered Investment Advisors (RIAs) was discussed.
The SEC Chairman said that the SEC will be increasing its focus on and strengthening the annual fit and proper assessments of RIAs at the point of renewing stockbroker licences. He encouraged the stockbroker community to work towards making the industry more attractive for the employment of high quality RIAs.
The importance of the compliance role at the market intermediary level was discussed. SEC officials stated that some intermediaries do not have a thorough understanding about the compliance requirements and the role of Compliance Officers. Compliance Officers are required to be independent of general operations and should directly report all compliance related matters to the Board.
They emphasised the need for all intermediaries to ensure that such reporting lines are effectively established.
The SEC Chairman said the main reason for inviting the owners of the stockbroker firms to the meeting was to draw their attention to the need for institution building to ensure the sustainability of the stockbroking industry. It is essential that the stockbroking industry moves forward with the development in technology and make continuous enhancements to their infrastructure.
In this context, the SEC Chairman suggested that a considerable percentage of the profits, made by the stockbroker firm (at least 25%) should be ploughed back towards institutional development expenditure.
Discussing the role of stockbroking firms in market development, the Chairman called upon the firms to submit their annual business plans to the SEC and added that this will be a requirement at the point of renewing stockbroker licences. Licences will not be renewed for inactive stockbroking firms.
The SEC Chairman stressed the need for stockbrokers to develop in-house research capabilities so that investment advisors can support their advisory roles with quality research to guide investors. A proper research arm is a pre-requisite for granting and renewing of licences to a stockbroking firm under the current SEC Act.
