Kathmandu. The Securities Board of Nepal issued a new directive on Ashoj 30, the day before the Dashain holiday. The rule, effective from that day, has tightened share trading by the board.
The board has implemented strict arrangements for stockbrokers, merchant bankers, stock exchanges, other intermediaries, and investors by issuing the 'Anti-Money Laundering and Combating the Financing of Terrorism Directive, 2083'.
What are the new arrangements implemented?
The directive includes provisions for investors trading above a certain limit in the securities market to disclose the source of their assets and mandatory reporting of suspicious transactions.
1. Source and Reporting Mandatory for Transactions of 10 Lakh or More
If any individual or legal entity conducts share transactions of 10 lakh rupees or more in a single day or multiple times, the indicator institution must send the prescribed details to the Financial Information Unit under Nepal Rastra Bank within 15 days of the transaction. Additionally, the source of funds for such clients must be disclosed and recorded.
2. National Identity Card and Biometrics Mandatory
When identifying clients, for Nepali citizens, verification must be done based on the details in the electronic record of the National Identity Card, and a relationship must be mandatorily established. When opening an account, the client's thumbprint or biometrics must be taken through electronic means. When opening an account electronically, arrangements have been made to verify the geographical location as well.
3. Investment Companies Must Be Listed on the Board
Investment companies established with the objective of investing in securities, with a paid-up capital of 5 crore rupees or more, or trading securities worth more than 10 crore rupees annually, must be mandatorily listed on the Securities Board. Such companies must identify the beneficial owners of their shareholders and submit a risk assessment report regarding the involvement of high-ranking officials or loan investments in the company to the board.
4. Suspicious Transactions Must Be Reported Within 3 Days
If unusual or suspicious transactions are identified by the indicator institution, they must be reported to the Financial Information Unit immediately. If a client even attempts to conduct a suspicious transaction, it must be investigated and reported to the Financial Information Unit within 3 days. If it appears that the client will realize the suspicion during the customer identification process, the process should be stopped, and a suspicious transaction report should be sent directly.
5. Payments Only by Check and Electronic Means
When making payments for buying and selling securities and other transactions, payments must be made mandatorily by account payee check or electronic means. Payment from the accounts of unrelated third parties other than the client is not allowed, and payments for business transactions cannot be made through personal accounts.
6. Strict Monitoring of High-Ranking Officials and Beneficial Owners
A mechanism must be created to identify domestic and foreign high-ranking officials, their families, and close relatives. Their records must be maintained for at least 10 years from the date of retirement from office or termination of business. Within six months of the directive coming into effect, the details of all high-ranking officials must be updated with their National Identity Card information.
7. Special Monitoring on Specific Transactions
Transactions regularly occurring in the secondary market in the name of minors, transactions where beneficial ownership does not change, transactions made through the transfer of rights of rights shares, and bulk transactions occurring outside the trading system have been classified as specific transactions requiring special attention.
8. Strict Fines and Penalties
Indicator institutions, directors, and officials who do not effectively implement the directive can be fined from 10 lakh rupees to 5 crore rupees, removed from office, or both, depending on the severity of the offense. This is a strict provision.
Board's Grip on a Managed Market
The stock market, which was around 2950 points in March when the new government was formed, remained in a bearish trend during this period. However, after the interest rate and the hangover of Dashain at the end of Ashoj, the market has started to move towards improvement.
In the seven trading days before the holiday, the market rose continuously, showing an improvement of 62 points. Based on the last transaction, the market stopped at 2634.17 points. Accordingly, the total market capitalization is currently 45 kharba 34 billion rupees.
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However, the last few trading days were pleasant for traditional investors as groups like banking, development banks, non-life insurance, and other groups, which do not experience much fluctuation, showed improvement. The improvement seen particularly in the banking group had instilled hope among investors.
However, the directive that has now come has created a situation where investors in the stock market are likely to become disappointed again. Discussions are also ongoing in various groups of the stock market regarding the impact of this directive.
Market analyst Dev Guragain states that it is not appropriate to create unnecessary hype as if the board is bringing a new or extraordinary arrangement by making a directive. He says that investors do not need to panic because the law related to money laundering is not a new law and the board's arrangement is not strict.
“The legal provision related to money laundering was not made today; this act came about two decades ago. The directive made to implement the provision in that act is neither new nor strict,” says Guragain. “Therefore, instead of drawing conclusions by separating just one clause of the directive, it is necessary to look at its legal basis and the provision in the main act together.”
Nepal is currently on the grey list for money laundering. Nepal will be re-evaluated in the plenary meeting to be held in February. For that, Nepal needs to improve in the areas pointed out by the Financial Action Task Force (FATF), an international organization related to money laundering.
However, market analysts say that the arrangement implemented in the market is likely to put psychological pressure on investors.
