Regulator forbids RACE from managing funds until further order

The securities regulator has taken away control from RACE Asset Management over mutual funds after it identified BO (beneficiary owner's) accounts opened to handle funds' assets bypassing the approved custodians.
The regulatory order came on Monday two weeks after it suspended block transactions of assets in the portfolios of RACE-managed pooled funds while an investigation has been underway into the activities of RACE.
The asset management company had opened BO accounts with Multi Securities and Services, The Smart Trades, Trust Bank Securities and many other brokers in breach of the mutual fund rules 2001 that obligates AMCs to keep assets of MFs under the supervision of custodians approved by the regulator, according to an order issued by the Bangladesh Securities and Exchange Commission (BSEC).

The risk with unauthorised accounts is that even if the asset manager mishandles the portfolios using them, it will not be reflected in the reported status.
"So, what we will see as net asset value (NAV) of a fund may not be the real one," said Md. Ashequr Rahman, managing director of Midway Securities.
"Following the directive, RACE lost its management authority over the funds," he added.
RACE will not be able to trade in the assets of MFs until further instructions by the regulator, reads the order.
If the regulatory probe finds any misappropriation of funds in the RACE-managed portfolios, it will have a major impact on the market.
The largest private asset manager, RACE accounts for 48 per cent of assets under management of close-ended funds. Total assets under management (AUM) of RACE were equivalent to Tk 28.70 billion as of February this year, according to IDLC Asset Management.
"The audit reports of MFs must be signed by trustees and custodians. If there were any issue, what did they do? Why didn't they raise any red flag?" questioned a Prime Bank management official preferring anonymity.
The BSEC said it would scrutinise the role of the parties concerned in the violation of the rules.
The BSEC asked the trustees of RACE-managed funds to take control over all BO accounts opened and managed in the names of the MFs and report to the commission in seven working days from the day of issuance of the order the status of the portfolios.
In the meantime, the custodians of the MFs will have to close the unauthorised BO accounts and transfer assets from there into the accounts under their watch, as per the directive.
Every party relevant in the operation of the MFs will also have to notify the securities regulator of the steps taken by them in compliance with the order within the next 10 working days.
Any untoward outcome of the investigation will further blemish the image of the mutual fund industry, said Mr Rahman.
If the largest fund manager is found guilty of any financial frauds, investors will be discouraged from investing in MFs managed by others too. There will not be any sponsors of new funds as well.
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