NRBC Bank Securities comes under probe over alleged data falsification

NRBC Bank Securities will face a thorough regulatory investigation over alleged non-compliance, including the submission of fabricated data on negative equity to the securities regulator.

A two-member committee formed by the securities regulator has been asked to submit a report within 60 working days of the issuance of the order on Wednesday last week.

The decision to probe NRBC Bank Securities came on the back of prima facie evidence of non-compliance, according to sources at the Bangladesh Securities and Exchange Commission (BSEC).

According to the terms of reference (ToR) set for the inquiry committee, it will examine whether the company declared cash dividends during periods of negative equity or unrealised losses.

When a brokerage firm has negative equity, it indicates mismanagement of margin accounts by the company, said a BSEC official who wished not to be named. This leads to operational risks.

If the same company incurs unrealised losses in its own investment portfolio, operational risks intensify.

In such a situation, the company should not declare or distribute cash dividends to its shareholders.

"That's why the inquiry committee has been asked to find out whether the cash-strapped NRBC Bank Securities declared or facilitated cash dividends during periods of negative equity or unrealised losses," the BSEC official added.

NRBC Bank Securities allegedly did not submit accurate information to the BSEC regarding its negative equity. The inquiry committee will examine whether there was misreporting or falsification of such information.

The company also allegedly failed to maintain adequate provisioning against negative equity and unrealised losses within stipulated timelines. These matters of non-compliance will fall under the purview of the regulatory investigation.

BSEC sources said they also found preliminary evidence of the company trading in junk and speculative shares through BO (beneficiary owner's) accounts with negative equity.

The inquiry committee is also expected to look into block and bulk transactions allegedly executed by the company in breach of rules.

According to information from the BSEC, the company also intentionally breached margin discipline set for lenders.

Previously, the securities regulator restricted transactions in accounts with negative equity to prevent further erosion.

The BSEC inquiry committee has been asked to examine whether such accounts were used for buy/sell transactions, IPO applications, or portfolio management activities.

Some lenders often use clients' accounts as marginable accounts without any agreement with the clients.

Many clients have raised allegations about the use of their accounts by lenders as marginable accounts.

Insiders said some clients failed to understand the documents they signed while opening BO accounts. Later, they discovered that their accounts had experienced more erosion than expected due to margin loans.

The BSEC has asked its inquiry committee to examine whether margin accounts were opened by NRBC Bank Securities without the consent of the respective clients.

The management's intent and the responsibility of the chief executive officer, managing director, and the board will also come under scrutiny.

Previously, the brokerage firm faced regulatory warnings and penalties for violations of securities laws.

For example, the BSEC fined NRBC Bank Securities in October 2024 for having a shortfall of Tk 627.6 million in its consolidated customers' accounts.

In 2022, the securities regulator disposed of an allegation by issuing a warning letter to the company.

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