Банкеръ Weekly



The most frequent violation on the part of investment intermediaries is the lack of a contract with the client, the Financial Supervision Commission (FSC) has established after 43 inspections, carried out since the beginning of the year. Moreover, in many cases there was no declaration for checking the client's identity, and no certification by the person effecting the internal control at the respective investment intermediary for compliance of the contract and the declaration with the legislative requirements. The FSC has issued 19 statements about such violations.
Often a contract was signed but it was accompanied by documents with evident irregularities, incomplete data, and inaccuracies. The commission has issued 17 statements about such violations.
There are four statements about clients' orders which the brokerage houses have not fulfilled at first opportunity and at the best terms for them. Another four statements have been issued for violations of the stipulations of article 72 of the Public Offering of Securities Act. That provision requires from the investment intermediary to enter in a special register all orders of the clients by the order they are received and fulfil them, observing that order. Three statements have been issued for violations of the requirements of article 161 of the above mentioned law (speculation with internal information and manipulation on the stock exchange).
In fact, the FSC has received 985 claims regarding various violations. 400 of them were directed to other competent authorities, such as the Sofia Directorate of the Interior Ministry, the Prosecutor's Office, the Financial Investigation Agency, the tax authorities, etc.
Due to systematic violations the the FSC has launched a procedure for revoking the licences of two investment intermediaries - Accent Finance and Fininvest. It should be noted that they have initiated that move themselves as they did not have another choice. Trade in Fininvest shares has been stopped on the BSE-Sofia since last April till the completion of the administrative and punitive procedures on the part of the FSC. Its main guilt is that it signed deals on behalf of dead persons. The Deputy Chairperson of the commission, Dimana Rankova, explained that nearly 200 of the customers of Fininvest have died long ago. Violations of the kind caused the suspension of Unity Invest and XPit Co's licences.
Investment intermediaries also lost their permissions because of their disability to meet the capital adequacy requirements. From July until mid-November the Financial Supervision Commission restricted the licences of Dealing Financial Company AD, Aval In, Capital Finance OOD and Makler-2002 AD-Plovdiv. Since March only one company has been permitted to act as an intermediary - KD Securities. The Varna-based Svis Investment was rejected by the commission.
Eighty-eight investment intermediaries are operating at present, of which 29 are banks. Just 30 of the remaining 59 are allowed to make transactions abroad and 21 own full licences. However, this is just the beginning of the market consolidation and the number of players on it will keep falling. The amendments to the Law on Public Offering of Securities made last May stipulate that all intermediaries (apart from the banks) re-register between January 1 and January 31, 2006. The new capital adequacy requirements are the reason for all changes.
Investment intermediaries who want to get a full licence need to possess a capital amounting to at least BGN1.5MN from 2006. Partial licences will be given to those who own at least BGN250,000. If the intermediaries give up the right to hold money and securities of the customers and to carry out investment services and activities they are allowed to have a capital below BGN100,000.
Experts claim that by the middle of 2006 the number of investment intermediaries will have shrunk to 50 and by 2007 it will have become 20 or 25, with just 10 or 15 of them operating actively.

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