SECP unveils rules to monitor working of Securities Advisers

The Securities and Exchange Commission of Pakistan (SECP) has issued detailed regulations to monitor the working of securities advisers by making it mandatory for them to obtain licences from the Commission for working as such advisers. The SECP has issued Securities and Futures Advisers (Licensing and Operations) Regulations, 2017. According to the SECP, no person shall act as or perform the functions of a securities adviser or futures adviser unless such person is licensed with the Commission as a securities adviser or futures adviser under the Securities Act or Futures Act and these regulations.

Provided that a person performing distribution of Collective Investment Schemes (CIS) and/or Voluntary Pension Fund (VPF) units of multiple AMCs by entering into contracts with such AMCs will be required to obtain licence as a securities adviser under these regulations, in order to perform functions of a distributor, and all licensing conditions applicable to a securities adviser shall be applicable to such distributor.

Provided further that it will be mandatory for a securities broker or a futures broker licensed with the Commission to obtain licence as a securities adviser or a futures adviser under these regulations. The SECP said that an NBFC holding the licence for Investment Advisory Services shall be exempted from the requirement of obtaining licence as a securities adviser or futures adviser subject to the laid down terms and conditions.

A securities adviser or futures adviser shall ensure that it obtains from the customer, such information as is necessary for the purpose of giving investment advice, including age, investment objectives including time for which they wish to stay invested, the purposes of the investment, income details, level of understanding and knowledge, existing investments/assets, risk appetite/tolerance and liability/borrowing details, the SECP said.

The SECP said that a securities adviser or futures adviser shall ensure that it does not make unsubstantiated claims, in order to induce customers, about qualifications of its professional staff or its capabilities to render certain services or its achievements concerning services rendered to other customers. It does neither get involved in unfair competitive practices, nor shall solicit business from customers on the basis of any undue benefit, and it does not publish, circulate or distribute any advertisement or any information which is false, misleading or deceptive and any advertisement is written in clear language and is not such which may prejudice interest of any person or customers in general.

A securities adviser or futures adviser shall, before commencement of business with a customer, enter into an agreement in writing with its customer clearly defining the inter se relationship, and setting out their mutual rights and obligations, the SECP said. A securities adviser or futures adviser on introduction to a prospective customer shall disclose that the securities adviser or futures adviser is licensed with the Commission and prominently display the licence granted by the Commission and maintain high standards of integrity, promptitude, fairness and act with due skill, care and diligence in conduct of its business.

A securities adviser shall not involve either directly or indirectly in the misselling of CIS/VPF units and only deal in units at the unit price quoted by the respective AMC and which are publicly available. A securities adviser shall avoid making negative statements about any AMC or CIS/VPF and ensure that comparisons, if any, are made with similar and comparable products; provide full and latest information of schemes to customers in the form of offering documents, fund manager reports and brochures; avoid commission-driven malpractices such as encouraging over-transacting and churning of investments to earn higher commissions even if they mean higher transaction costs and tax for customers and adhere to these regulations and any other regulations, circulars or guidelines issued by the Commission from time to time.

The SECP said that a securities adviser or futures adviser shall ensure that all investment advice provided to the customer is appropriate to the risk profile of the customer, and that no investment or scheme is recommended to the customer on the basis of extra commission or incentive earned. It has a documented process for selecting investments based on customer’s risk profile investment objectives, tolerance for risk, time horizon, liquidity needs and financial constraints. It understands the nature and risks of products or assets recommended for customers and it has a reasonable basis for believing that a recommendation, the SECP added.