Banks, NBFIs fear penalties as securities regulator, central bank at loggerheads

Listed banks and non-bank financial institutions (NBFIs) are worried over regulatory punishments as the Bangladesh Bank and the securities regulator have locked horns over the settlement of unclaimed dividends and formation of an additional sub-committee.

In such a situation, if the financial organisations comply with BB instructions, the Bangladesh Securities and Exchange Commission (BSEC) will consider them non-compliant and vice verse.

That reflects the level of non-cooperation between the two regulatory bodies.

The central bank has remained inflexible against the BSEC's directive to banks and NBFIs to form a Nomination and Remuneration Committee NRC) to determine qualification, performance, and remuneration of the companies' directors and top officials. It also opposes transferring of unclaimed dividends to the Capital Market Stabilization Fund (CMSF).

Representatives of the Bangladesh Association of Publicly Listed Companies (BAPLC) met the governor of the central bank on Sunday and handed a letter explaining the confusion over the matters and sought a solution.

The FE correspondent has seen the letter and talked to sources who participated in the meeting.

In June 2018, the BSEC included a mandatory provision of forming an additional sub-committee namely NRC in its corporate governance code.

But in two circulars - one issued in October 2013 and another on February 11 this year -- the BB forbade banks to form any permanent, temporary and sub-committee other than executive committee, audit committee and risk management committee.

As per these circulars, NBFIs are not allowed to form a sub-committee other than executive committee and audit committee.

The contradictory instructions have put banks and NBFIs in a dilemma over which one they should abide by, said the association of listed companies in the letter to the BB governor.

A BAPLC representative said top BB officials at the Sunday's meeting told the meeting participants that there was no scope for banks and NBFIs to go beyond the BB instructions.

Preferring anonymity, the managing director of a listed company said the group of companies does not want intervention of such a committee - NRC -- in fixing remunerations of departmental heads.

Moreover, the central bank itself handles appointments of managing directors of banks and other financial institutions, which is why it does not want NRC's intervention in the hiring of managing directors of the institutions and deciding their compensations.

However, Managing Director of the Dhaka Stock Exchange (DSE) ATM Tariquzzaman said the role of NRC committee was very crucial in ensuring good governance in the companies.

The NRC can work so that no one among the companies' top executives are deprived of due remuneration.

"The NRC will also work for the placement of right persons in right places," added Mr. Tarquzzaman, also a former BSEC executive director.

The Sunday's meeting discussed the matter of transferring unclaimed dividends to the account of the CMSF by the listed companies too.

The securities regulator introduced rules for the CMSF in 2021 to facilitate settlements of dividends that remained unclaimed or undistributed for years and to support the country's capital market.

As per the rules, any cash dividend that remains unpaid or unclaimed or unsettled or undistributed for a period of three years from the date of declaration or approval or record date shall be transferred by the issuer company to the bank account of the CMSF.

The securities regulator said on several occasions that listed companies should not keep unclaimed dividends with them year after year.

After repeated warnings, the BSEC in January this year issued a directive saying issuer companies will face a 2 per cent penalty per month on the unpaid or undistributed or unclaimed dividends from March.

Meanwhile, the stock market watchdog has asked the CMSF to conduct a special audit of 50 listed companies, including some market leaders, in the first phase to find out the actual amounts of undistributed dividends and misuses of the funds, if any.

BSEC officials said many interesting matters had surfaced during the special audits.

At the meeting, BB officials said they appreciated actions of the CMSF, but there was no scope of transferring the unclaimed dividends [of banks and NBFIs] to the CMSF account.

They said the CMSF rules had not been introduced through proper authority and that they would request the Finance Division of the Ministry of Finance to introduce laws in this regard.

Deposits of a bank's client are sent to the central bank if no one has claimed it for 10 years. After keeping the fund in its account for two years, the BB transfers the fund to the government exchequer.

But there is no such provision for transfer of unclaimed dividends to the CMSF account, said BB officials.

As the Sunday discussion made little headway in finding a solution, a BAPLC representative has expressed dissatisfaction over the inactiveness of the Ministry of Finance (MoF) for ensuring coordination between the two regulatory bodies.

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