BSEC Moves to Revoke Licenses of Six Merchant Banks
Graphics: Agamir Somoy
The Bangladesh Securities and Exchange Commission (BSEC) has decided to begin the process of revoking the registration certificates of six merchant banks after they failed to meet the minimum net capital requirement and other financial eligibility criteria. The institutions have long faced allegations of violating regulatory requirements and remaining largely inactive.
The commission reached the decision after conducting special investigations as part of the preliminary process for canceling the institutions' registrations. Based on the findings, BSEC approved the move. Separately, the regulator has ordered investigations into UniCap Investments Ltd. and GSP Investments Ltd. to determine the causes of their net capital shortfalls. It has also sought an explanation from BRAC EPL Investments Ltd. over the same issue.
To ensure the financial soundness of merchant banks, existing regulations prescribe a minimum net capital requirement. Under the Securities and Exchange Commission (Merchant Banker and Portfolio Manager) Rules, 1996, a merchant bank's net capital must be at least 50 percent of its paid-up capital to qualify for registration. If net capital falls below the required level, questions arise over the institution's financial health. In such cases, the regulator may review its operations, seek explanations, or take regulatory action.
Asked about the matter, BSEC Executive Director and spokesperson Abul Kalam told Agamir Somoy that meeting the regulator's financial eligibility requirements is mandatory for every merchant bank. He said the commission is taking action under existing laws and regulations against institutions that have failed to maintain the required net capital over an extended period. He added that BSEC has also ordered investigations into two merchant banks to determine the actual reasons behind their capital shortfalls. If investigators find evidence of irregularities, negligence, or regulatory violations, the commission will take legal action against those responsible.
According to sources, the commission reviewed the cases of six merchant banks with net capital deficiencies during its meeting. It decided to initiate the process of revoking the registration certificates of FAS Capital Management Ltd., Imperial Capital Ltd., NDB Capital Ltd., Riverstone Capital Ltd., HAL Capital Ltd., and Roots Investment Ltd.
The commission also directed BRAC EPL Investments Ltd. to submit an explanation regarding its net capital shortfall and instructed officials to place the matter before a future commission meeting. In addition, BSEC decided to launch an investigation into UniCap Investments Ltd. under a specific scope of work. It also ordered a separate investigation into GSP Investments Ltd., setting a new scope beyond an ongoing probe. The commission instructed its Market Intelligence and Investigation Division to carry out the related activities.
At another meeting, the commission reviewed BRAC EPL Investments' explanation and decided to record the company's progress in increasing its net capital. During the same meeting, it also directed officials to submit separate working papers on UniCap Investments and GSP Investments.
At its latest meeting, the commission approved the proposed terms of reference for the investigation into UniCap Investments. Under the approved scope, BSEC's Market Intelligence and Investigation Division will examine the reasons behind the company's net capital shortfall, its financial condition, compliance with regulations, and other related matters.
Market participants said the commission's move against merchant banks that failed to meet the minimum net capital requirement sends a strong message about ensuring the financial soundness and accountability of market intermediaries. They added that the investigations are expected to determine the actual causes of the institutions' capital deficiencies.
BSEC currently has 66 licensed merchant banks. The regulator recently also began the process of revoking the registration certificate of CAPM Advisory for providing false and misleading information in a prospectus.
