BSEC smells a rat

The securities regulator BSEC has raised serious concerns over the listed banks’ unwillingness to deposit undistributed dividends to the designated banks as per the regulatory order.

The concerns came months after the banks failed to deposit the dividends, which remained unclaimed for years, in the newly-formed Capital Market Stabilisation Fund (CMSF) despite the repeated warnings by the regulator.

“The banks did not transfer the cash and shares that remained undistributed or unsettled following the BSEC’s instruction, raising serious concerns about the misappropriation of investors’ funds,” writes the BSEC to the banks on April 12.

The regulator also directed the banks to explain their non-compliance and submitted the relevant papers and documents within three days of the issuance of the letter.

The BSEC also wrote to the Bangladesh Bank and Association of Bankers Bangladesh Limited about the issue.

“The bank has no right to withhold investors’ money as such a fund is supposed to be kept separately in the dedicated bank accounts of the bank and the suspense BO accounts of the bank for settlement of investors’ claims,” the letter reads.

The banks were also asked to inform the BSEC whether the unclaimed dividends are kept as payable in the branches of the bank against any depositors’ money or held in the safe custody of the bank as part of the bank’s custodian service or not, according to the letter.

The BSEC also instructed the banks to explain if those shares or stocks held in suspense BO accounts against unclaimed or undistributed or un-allotted to investors have been carrying against negotiable instruments or not.

On June 27, 2021, the BSEC instructed all listed companies, including banks and non-bank financial institutions, to transfer unclaimed cash and stock dividends to the CMSF.

Then, it extended the deadline for depositing unclaimed dividends in the CMSF to May 31.

Listed bankers claimed that they don’t understand who they should listen to. They have sought proper guidelines from the BB as well as BSEC in this regard.

On September 13, 2021, the central bank told the BSEC that banks and NBFIs are not allowed to transfer unclaimed or unsettled dividends to the CMSF as it was contradictory to section 35(1) of the Bank Company Act, 1991.

On January 13 this year, the BB ordered the banks to report on how much money or undistributed dividend the entities had transferred to the market stabilisation fund.

However, the BSEC, in its latest letter to banks, said, “Shareholders have an absolute right to get dividends (whether distributed or not) on their investment in equity, which is ultimately approved in the annual general meeting in line with the company act, 1994.”

The referred section 35(1) of the Bank Companies Act, 1991 is applicable to banks’ depositors’ money and the referred banking services, it said.

It said there was no contradiction between the referred section and the BSEC’s instruction.

The BB and BSEC have been in a tussle in recent times regarding various issues, including the declaration of dividends, the formation of a remuneration committee, the banks’ stock market exposure, and the transfer of banks’ unclaimed dividends to the market stabilisation fund.

As BB is the primary regulator of banks, the BB wanted the banks to comply with the bank company act, while BSEC, being the regulator of listed companies, wanted the banks to comply with securities rules first, regardless of what the other rules said.

Some listed companies have started to transfer the unclaimed dividends and non-refunded IPO subscription funds to the market stabilisation fund.

Rules recently framed by the BSEC created the CMSF worth around Tk 21,000 crore with listed companies’ dividends, which remained unclaimed for a long time.