In a letter to the PSE, the SEC’s Markets and Regulation Department director Jose P. Aquino said this is in line with the policy adopted by the SEC on the accreditation of external auditors and their reporting requirements.
Aquino said the policy was envisioned to strengthen the enforcement capacity of the SEC as a regulatory body and increase reliance on the opinion of external auditors.
Aquino has also asked broker-firms to include in their disclosure the name of their external auditor for this year.
The SEC earlier ordered the conduct of a more thorough audit on the 12 broker firms earlier found to have allegedly violated provisions of the Securities Regulation Code. The commission said the PSE would have to hire external auditors to validate the findings.
Last October, the PSE’s Compliance and Surveillance Group and representatives from the SEC jointly conducted an audit on the book and records of broker-dealer firms to determine their compliance with the provisions of the src.
Their findings showed that 11 brokers allegedly failed to maintain the required net capital of P5 million while one broker reportedly failed to comply with the books and records rule.
Under Section 52 of the src, every broker or dealer is required to make available all reports, accounts, correspondence, books and other records at any time during periodic or special examinations by the SEC for the protection of the investing public.
The audit was in line with the corporate watchdog’s efforts to safeguard the interest of the public and ensure that broker-firms comply with the securities law.
Under the src, the commission may, on its own initiative, conduct periodic or parallel examinations of PSE member-brokers to validate the exchange’s findings.
Brokers would be penalized if the extended audit would show that they have indeed violated securities rules, the SEC said.
The alleged violations were uncovered after a PSE audit similarly exposed fraud and other violations by Asian Capital Equities Inc., a broker firm recently taken over by the PSE due to its capital deficiency.
Among the src provisions violated by ACE were Section 26, which declares it unlawful to engage in anything that operates as a fraud or deceit upon any person; Section 30.2, which seeks "fair" and "honest" dealings in securities and provides financial safeguards including the establishment of minimum capital requirements, acceptance of custody and use of securities of customers.
The other violations concerned restrictions on the borrowings by members, brokers and dealers as a percentage of net capital as well as the obligation to provide the SEC with records and reports at any time deemed as necessary for the protection of investors.