The Bangladesh Securities and Exchange Commission (BSEC) has decided to conduct surprise inspections of brokerage houses whenever signs of operational or financial risks emerge, without prior notice.

The move is aimed at strengthening risk-based supervision and protecting investors from potential shortfalls in customer funds, securities mismatches and financial or technological irregularities.

Under the new framework, BSEC will form a permanent eight-member joint panel comprising two representatives each from the BSEC, Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE) and Central Depository Bangladesh Limited (CDBL).

Based on identified risks, three members from the panel will be selected to conduct spot inspections at brokerage houses. The Market and Intermediaries Affairs Division of the BSEC will oversee the formation of inspection teams and issue the necessary orders.

BSEC Executive Director and spokesperson Md Abul Kalam said spot inspections would be carried out when necessary, although they would not form part of the regulator’s routine inspection process.

He said the initiative was intended to protect investors and maintain discipline in the capital market by making risk-based monitoring more effective.

According to BSEC sources, a key weakness of regular inspections is that brokerage houses can often learn about inspection schedules in advance. This may allow them to temporarily cover account shortfalls, arrange documents or conceal irregularities before inspectors arrive.

The new system is designed to prevent such preparation by allowing inspectors to examine a brokerage house’s actual condition without prior warning.

The terms of reference (ToR) for spot inspections identify five priority areas.

Inspectors will first check whether there is any shortage of funds in customers’ consolidated accounts (CCA). They will then verify whether the securities recorded in the books match the actual holdings and whether any shortage or mismatch exists.

The inspection teams will also assess the security of a brokerage house’s network and technological systems. They will examine whether the firm is regularly submitting reports related to risk-based capital adequacy (RBCA).

The fifth area will focus on back-office software. Inspectors will determine whether the brokerage is using software that complies with regulatory requirements and whether its transaction records can be altered.

Market stakeholders believe the new framework could shift brokerage supervision from a largely routine inspection-based approach toward risk identification, surprise checks and faster regulatory intervention.

They said the move could help strengthen the protection of investors’ money and securities while improving transparency and confidence in the capital market.