– Dibas Timalsena
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Have we noticed? In the financial sector of Nepal, there have been some representative financial crime incidents due to fraud by members of the board of directors, lack of proper attention to management, dominance of a single director in the decision-making process, or collusion of some directors. It is Ichharaj Tamang of Civil Group or Sudhir Basnyat of Oriental Cooperative. It is about Gorkha Bikas Bank or Gorkha Media. It is about the directors of the then Kist Bank or the directors of Nepal Share Market Capital. In this regard, it can be said with confidence from the news that has come out in the Nepali media that when an influential director of one financial institution is also an influential director of another financial institution, it makes some difference in financial governance.
It is believed that the basic investors and directors of any organization, basically the financial sector, are naturally qualified, honest, knowledgeable, expert, and trustworthy. On their proposal, the regulatory body of the financial sector has approved the establishment and operation of organizations such as banks and financial institutions, insurance companies, national-level to rural-level cooperatives, stock brokerage companies, capital and merchant banks that guide the economic activities of the people. In which the general public easily trusts and buys shares, invests, deposits their hard-earned money, and carries out insurance activities. Moreover, after a certain period of time, there is also the work of raising investment among the public by opening IPOs. In this way, the investing public has more widely trusted those basic investors and directors.
Thus, the specialized directors who have been in existence since the establishment of an organization are kept within certain limits and regulations by our laws, regulations, and guidelines, but only as a guideline. Those directors can work not only in a single company but also in various other companies as directors. Therefore, directors are working within various laws, regulations, and corporate governance. However, there is a consensus in almost all the laws made regarding economic activities that a director of a financial institution cannot become a director of a financial institution of the same nature. The definition given in Section 89 (g) of the Companies Act 2063 regarding the disqualification of directors is also found in Section 18 (h) of the Bank and Financial Institutions Act 2073, in Section 50 (h) of the Insurance Act 2079, and in Section 41 (4 and 5) of the Cooperative Act 2074 under the heading of disqualification of directors. Any person capable of investing in accordance with the property rights granted by the Constitution of Nepal can open an institution in any field and become a director of that institution. However, in the case of businesses of a conflict of interest nature, they cannot be directors.
In addition to this Act, regulatory bodies have been working from time to time to ensure full compliance with the provisions of the said provision through regulations, guidelines, circulars, and integrated instructions. In the context of corporate governance, assurance of the said provision is also sought through the report of the compliance officer. However, despite these best efforts, why is it that some bad dual directors are seriously affecting not only the financial institution but also the entire financial system. One small mistake in the implementation of the provisions of our strong Act is happening because of each other of our policymakers. And that is: the lack of a Director Identification Account (DIA).
The Director Identification Number is a system that has now become indispensable for the financial governance of the financial sector and also for corporate governance. Generally, we understand the PAN number. DIA is a system of the same nature. A person who is qualified to be a director of a corporate organization receives such a unique number DIA. This number remains even if he becomes a director of another corporate organization or leaves the board. This DIA can be used to measure the record of the director in various companies while he is in office or leaving. More specifically, it is also useful for the track record of directors in the case of organizations established under the Financial Interest Regulation Act. Financial interests that were not present at the time of appointment of a director may be established in various forms by purchasing underlying shares or by marrying or contracting in the future. It is not easy to maintain and regulate the records of every such person, such as a family member of a director or a three-generation record of that director. It is not easy and simple to regulate the events of everyone’s life due to personal events such as minors, children, marriage, divorce, death of the director, but also due to the impact on the property. In such a situation, DIA can be an effective system. DIA profile is very effective when registering or dissolving an organization, when a director is appointed or removed, when purchasing more than 1 percent of the paid-up capital, and when the organization is on the close watch list. This system helps to increase the transparency and accountability of the organization. In addition, it also proves helpful in investigating any financial crime.
##Works to be done for the effective implementation of DIA
A. Policy work:## Primarily, some laws of Nepal need to be amended for DIA. For this, the Companies Act of Nepal 2063 needs to be amended first. After amending that law, the Securities Act, the Bafia Act, the Insurance Act, and the Cooperative Act should be amended sequentially, keeping the same provisions in mind. And, the regulations made under each act need to be amended. In addition, the regulatory body of the taluk should also make a new guideline.
B. Administrative work: The DIA form to be filled in for this DIA as prescribed by the company law should be made in a manner adopted by all regulators. For this, the company registrar’s office should make arrangements for filling the form electronically. Arrangements should be made for the form to be verified and certified by the company secretary of the organization. To maintain the uniformity of DIA, a unique number system should be created and the number should be viewed through the website. A centralized data system should be arranged for this. Public information, news, and advertisements necessary for public awareness regarding this arrangement can be disseminated through the government.
C. Regulatory functions: Registered DIAs should be able to be viewed by the concerned regulators, updated with new records, and given notices regarding suspension and blacklisting. The authority to complete the necessary procedures for the confirmations requested by the regulator should be vested in the Company Registrar’s Office itself. In addition, there should be a provision for the Company Secretary of the concerned company to enter the said number and view the basic details. And, there should be a provision for the regulators to make this DIA mandatory in the official documents submitted by the directors of the companies under their regulation. In case of legal action against the directors for any reason, a portal can also be arranged where the regulator can maintain the necessary complaint arrangements.
D. Responsibility of the organization: Regulated organizations can be required to strictly comply with this provision in the compliance officer’s report submitted periodically. This provision can also be required to be complied with in the documents related to changes in the board of directors and the fit and proper test for the appointment of new directors.
E. Other working arrangements: This arrangement can be implemented in the first phase starting from financial institutions and gradually extended to other various industrial sectors and service sectors. For this, the support of the private sector will be fully required. For which the role of bodies like FNCCI, CNI may be important.
Therefore, if attention is paid to the implementation of this DIA, it will have a positive impact on the overall economic activity by increasing transparency, institutional good governance, and accountability, especially in financial institutions. A system will be created where those who make mistakes will be punished and those who act within the rules will be honored. If this is achieved, it seems that DIA may prove to be an important milestone in the regulatory aspect.
