SEC moves to protect investors with new directive

In an effort to further protect investors, the Securities and Exchange Commission has issued a new directive to all Capital Market Operators open, maintain and operate Trust Accounts for and on behalf of its clients, effective Thursday, July 16, 2020.

According to the Regulator, the Trust Fund shall hold all monies received from clients or on behalf of clients by Capital Market Operators shall be deposited for the purposes of investment.

A Trust Account as determined by SEC, shall not contain any other money except those deposited by clients or on behalf of clients of Capital Market Operators for investment purposes.
The Accounts shall be immune to bankruptcy and liquidation proceedings or processes of Court, thus, where a licencee becomes bankrupt or falls into liquidation or incurs a debt, a Trust Account operated by the Capital Market operator shall not be subject to bankruptcy or liquidation proceedings or be used as a payment for the debt.
The Regulator further indicates that monies held in a Trust Account are not available for payment of the debts of Capital Market Operator or liable to be paid or taken in execution under an order or process of a court.
In this regard, a Trust Account shall be separated from other Accounts maintained by the Capital Market Operator for operational or proprietary purposes.
To ensure that Capital Market Operators adhere to the directive, SEC has also directed that all Custodians and Trustees with which Trust Accounts are opened, maintained and operated shall ensure that receipts, payments and disbursements into and from a Trust Account are only in respect of clients investments and the beneficiary on behalf of whom the receipt, payment and disbursement is made is clearly identified by name and Identity card so that the entries on the Trust Account can be reconstructed such that a statement containing all debits and credits on the Account can be attributed to individual beneficiaries.

The Commission further stated that where it appears to a Custodian or Trustee that a Trust Account is not being used for the purposes above, the Custodian or Trustee shall notify the Regulator immediately before the transaction in question passes or is effected by the Custodian or Trustee.

Any Capital Market Operator that breaches the directive will be subject to sanctions under section 209, 159(7), (8), 160(1)(d), 160(2), 160(7)(8), and/or any other relevant provision applicable under the Securities Industry Act 2016 (Act 929), which includes revocation of license.


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