SECP advocates new regulations for managing conflicts of interest

KARACHI: The Securities and Exchange Commission of Pakistan (SECP) has noted that new regulations for the management of conflicts of interest are required to prevent any further loss of investors’ confidence in the financial system.

The SECP in its report “Efficient regulation of conflicts of interest facing market intermediaries”, published by International Organisation of Securities Commission (IOSCO) in October said that the market discipline in the form of penalties and litigation, which is focused towards limiting conflicts, is important.
Market intermediaries include the securities firms carrying out financial investment services such as brokerage, dealing, asset management service, etc., regardless of the type of financial products.

The market intermediary could also provide corporate finance services such as initial public offering (IPO) underwriting and merger and acquisition consulting.


While conflict of interests means the act of pursuing the interests of particular firms or investors at the expense of the interests of others as it could occur between the client, investor, issuer, etc, and the market intermediary carrying out a single or multiple financial investment services, or between different clients or market intermediaries.

According to the report, recent scandals in the financial industry worldwide have put doubts over markets ability to adequately control conflict of interests. Regulators have come under fire for not having sufficient and appropriate regulations in place to counter the risks posed by the conflicts of interest, it said.

The report suggests that the regulators need to realise that the new regulations should be focused towards changing the behaviour of intermediaries as it is the only solution to try and eliminate the conflicts of interest.

“Several regulators have implemented certain guidelines or are in the process of strengthening their regulatory framework to better tackle the risks posed by the market intermediaries’ conflict of interests.”

The SECP report suggested that mechanisms should be put in place between different jurisdictions to develop interface among regulators to share experiences and information relating to better management of the conflicts of interest facing market intermediaries.

“Such interaction will also enhance bilateral cooperation and initiative between member jurisdictions.”