The government is set to tighten securities laws to prevent ‘the conflict of interest’ in the securities market.
On Friday, the government registered a bill in the Federal Parliament to amend the Securities Act, 2063.
The proposed amendments include reducing the number of Securities Board members, setting a cooling-off period for the chairman and senior officials, and strengthening punishment provisions.
In the bill registered by Finance Minister Bishnu Paudel, it has been proposed to remove the provision for representative members of the Institute of Chartered Accountants of Nepal (ICAN) and the Federation of Nepalese Chambers of Commerce & Industry (FNCCI) in the Securities Board of Nepal (SEBON).
Currently, SEBON's board of directors consists of seven members, but the bill suggests reducing this number to five.
Three years ago, Chandra Dhakal, who was the senior vice-president of the FNCCI at the time and the current president, resigned after facing criticism for conflicts of interest during his tenure as a member of SEBON’s board of directors.
Currently, FNCCI Vice President Sur Krishna Vaidya and ICAN Vice President Prabin Kumar Jha, are members of SEBON's board of directors.
Niraj Giri, the former executive director of the board, said that it was suitable to exclude representatives from the FNCCI and ICAN from the board of directors due to conflicting interests.
“The board oversees the company, which is represented by FNCCI, and the company is audited by ICAN representatives,” said Giri. “It is preferable to remove them from the board as they have conflicting interests."
The bill also raises the qualifications required for independent directors.
Currently, the government can appoint an individual with 7 years of experience in the relevant field as an expert member. The proposed change suggests increasing this requirement to 10 years.
Similarly, the bill proposes a cooling-off period of two years for the chairman of the board and senior employees.
It includes a provision that individuals retiring from positions above the level of a first-class officer and chairman cannot work as officials in organisations licensed by SEBON for two years.
This measure aims to prevent potential conflicts of interest, as a retired chairman, executive director, or deputy executive director might influence decisions in favour of their future employer if they join an organisation previously approved by the board.
In the bill, it is proposed that when SEBON members and employees are appointed, they should self-declare and inform the board if they have any personal interests in securities transactions and commodity contracts.
They should inform about any direct or indirect interests they or their families have before discussing their appointment.
Additionally, they must refrain from participating in the decision-making process if they have such interests.
Currently, if the board approves, or if a quorum is not met, participation is allowed in the decision-making process.
Three years ago, the then Chairman of SEBON, Bhishma Raj Dhungana, was dismissed by the government after it was confirmed that he had bought shares of Sarbottam Cement, which was in the process of issuing shares through the book-building process, in the name of his family.
Nepal Stock Exchange (NEPSE) CEO Chandra Singh Saud also resigned due to the dispute over the Sarbottam share case.
Similarly, penalties for insider trading and fines for other offences have been increased under the new bill.
The bill further proposes a provision for the board to oversee and regulate transactions in the commodity market and allows securities traders to provide margin services.
