The Unlicensed Referral Pipeline
Rahman Securities Ltd. (RSL) is a BSEC-registered broker. Its head of retail sales, Farhan, built a network of 40 part-time "investment consultants" who work from home, are paid a 15% share of every commission their referred clients generate, and use RSL's logo on their personal Facebook pages. They do not execute trades; they collect signed account-opening forms and ID documents and forward them to RSL's Dhaka office, where RSL staff verify and activate accounts. None of the 40 has passed any BSEC-approved certification, and none is on RSL's payroll - they are paid as individual contractors. In a compliance review, the head of compliance argues the arrangement is lawful because "these people never touch a client's money or place an order, so they are not authorized representatives." Separately, one consultant, Nasrin, told a prospective client that a particular mutual fund "cannot lose money because the sponsor guarantees it," a claim the fund's own prospectus contradicts. The client invested BDT 800,000 and is now down 22%.
1. Is the compliance head's classification defensible under BSEC's registration and conduct framework for authorized representatives? Identify the conduct that triggers the licensing requirement and the firm-level failures.
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The classification is not defensible.
Why the "no orders, no money" argument fails. The authorized-representative regime is built around soliciting and referring clients and handling client onboarding, not just order entry. These 40 people are doing three regulated things at once:
- Solicitation - they approach prospective clients and market RSL's services.
- Onboarding - they collect account-opening forms and identity documents, which is a core client-facing function.
- Branded representation - using RSL's logo signals to the public that they act for RSL.
A person who solicits on behalf of a registered intermediary and is compensated per client is functionally an authorized representative. The commission-sharing structure (15% of generated revenue) is exactly the incentive the licensing and fitness requirements exist to control.
Firm-level failures:
- Unregistered persons acting for the firm - RSL is responsible for the conduct of persons it permits to represent it.
- Compensation design - pure commission on generated business, with no supervision, drives mis-selling.
- Supervision and record-keeping - no evidence of training, scripts, call logs, or complaint handling for 40 remote agents.
- Marketing control - uncontrolled use of the firm's logo breaches advertising/branding controls.
Remediation: suspend the network, register or terminate each individual, restructure pay to include compliance-weighted components, and adopt written referral procedures with documented supervision.
2. Nasrin's guarantee statement caused a BDT 800,000 loss now at 22% down. Analyze liability and the correct regulatory response.
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The statement is a misrepresentation. No mutual fund can guarantee against loss unless a genuine, disclosed guarantee exists; the prospectus contradicts the claim, so Nasrin's assertion was false and known or reckless as to its falsity.
Who is liable:
- Nasrin - for making a false and misleading statement to induce investment. Her unregistered status aggravates rather than excuses the conduct.
- RSL - primarily, under supervisory responsibility. RSL placed her in a client-facing role, paid her per sale, and failed to control her communications. The firm cannot disclaim responsibility for a sales claim made under its brand.
Correct regulatory response:
- Preserve evidence - the Facebook page, any chat or call records, the signed forms, and the client's complaint.
- Compensate the client - RSL should make the investor whole for the loss attributable to the misrepresentation (the difference between the represented position and actual outcome), then pursue recovery from Nasrin.
- Self-report to BSEC and cooperate; voluntary disclosure and remediation weigh heavily in enforcement outcomes.
- Disciplinary action - terminate Nasrin's arrangement, review all 40 consultants' communications for similar claims.
- Remediate the sales process - approved scripts, pre-approval of marketing, recorded disclosures that "investments carry risk and past performance is not indicative of future results."
Key exam point: the firm's failure to register and supervise does not shift liability to the individual alone - it compounds the firm's exposure.