Where the country's banking law contradicts with securities law, banking industry entities will not pay heed to the securities regulator's orders, said the Bangladesh Bank.
The development is likely to worsen further the relationship between the two vital regulators – BB and Bangladesh Securities and Exchange Commission (BSEC) -- of the financial sector. The tension between them has all along affected the capital market.
In a virtual co-ordination meeting on Monday of regulators of the banking, capital market, insurance, telecommunication and microcredit sectors, BB officials said some of the BSEC's rules and regulations were contradicting with the Bank Companies Act, and in such cases, listed banks and non-bank financial institutions (NBFIs) would not comply with what the securities regulator said.
The matters they oppose each other on include the Capital Market Stabilization Fund, payment of dividends from a specific year's profit despite cumulative losses, and the application of Section 2CC of the Securities and Exchange Ordinance 1969 that allows BSEC to act bypassing other laws of the country, except for the constitution, for the sake of investors and the market.
Any undisbursed cash or dividends or right shares, or non-refunded subscription money in the initial public offerings within listed companies held for three years should be transferred to the Capital Market Stabilization Fund intended to stabilize the market. The fund will be governed by a committee comprising professionals and representatives from diversified stakeholders.
Over Tk1,000 crore in cash and securities worth nearly Tk20,000 crore are set to be transferred to the fund which must be given back to the actual beneficiaries on demand.
Banks and NBFIs will not be able to transfer the fund and securities since laws regulating them do not permit such transfers, the BB said in the meeting, while requesting the BSEC to amend the market stabilization fund rules exempting banks and NBFIs from the obligation.
The BB and BSEC also disagree over payments of cash dividends from a single year's profit after cumulative losses.
BSEC allows such payments while the central bank does not.
The BB said neither banking laws nor the international accounting standards allowed banks and NBFIs to do so, and requested the BSEC to stop the practice within listed banks and NBFIs.
The central bank also said any regulatory decision hindering the compliances with other regulator's demand should be taken through a further analysis of the matter.
In a situation like this, there must be ways for an instant communication between the regulators concerned to resolve issues. For example, One Bank Ltd, a listed scheduled bank, announced dividends for the last year despite its provision shortfall, which the central bank forbids. So, the BB asked the bank to change the decision.
But the bank did not get securities regulator's approval to backtrack on the decision, since the declaration was price sensitive and had an impact on stock price.
Listed firms who have two regulators -- the BSEC and a primary regulator such as, the Bangladesh Bank, the Insurance Development and Regulatory Authority (IDRA) or the Bangladesh Telecommunication Regulatory Commission (BTRC), often suffer for similar conflicting regulatory stances.
Corporate Governance Code by the BSEC asked all listed firms to form their board's Nomination and Remuneration Committee (NRC), an integral part of global practices to make the company management accountable to the shareholders.
On the other hand, as the banking law does not have any provision for such a committee the BB does not allow any bank to have an NRC.
After a series of discussions, it had ruled out any possibility of NRC formation by banks and NBFIs.
BSEC Chairman Professor Shibli Rubayat-Ul-Islam told The Business Standard on Monday, "A committee which is a win-win for all should be encouraged for the sake of good corporate governance. A better coordination between all the regulators is a must for our economy that is aiming to become a developed one."
The Bangladesh Association of Publicly Listed Companies has been knocking the doors of both the regulators for a solution so that their members from banking and NBFI sectors get rid of the unbearable complexities.
The plan for exchange trading of government securities—the treasury bonds and bills—is suffering hiccups mainly because of a lack of agreement between the securities regulator and the central bank, while experts say the country is in dire need of a vibrant bond market.
BSEC Commissioner Dr Shaikh Shamsuddin Ahmed, who represented the BSEC in the co-ordination meeting, told The Business Standard, "Differing interpretations of laws can result in sufferings of the stakeholders. Since, each of our goal is common and that is the development of our financial sector and the economy we should be working together to resolve any issue."
Otherwise, any effort for progress will fail, he added.