As per the existing rules, merchant bankers can operate as sales and issue manager, underwriter, share registrar and investment manager.

Under the category of consultancy services, merchant bankers will be permitted to provide counsel on merger, asset valuation and business plan of corporate bodies, capital restructuring, loan syndication and working capital financing. Likewise, consultancy related to venture capital and wealth management of companies will also be provided by a merchant banker.

Sebon Director Paristha Poudel said that the working areas of merchant bankers had been broadened in the proposed regulation based on global practices. 

Besides adding consultancy to the list of services of merchant bankers, the proposed regulation has also hiked their paid-up capital requirement from Rs 70 million to Rs 80 million.

The paid-up capital requirement remains unchanged for merchant bankers conducting the existing four tasks while firms diversifying into consultancy services will need to raise it by Rs 10 million.

The capital required for sales and issue manager and underwriter has been proposed at Rs 30 million and Rs 40 million respectively. For share registrar and investment manager, the required capital is Rs 10 million each.

Meanwhile, merchant bankers cannot engage in other business activities except those defined as merchant banking by the Securities Act and the regulation on merchant banking.

The present regulation has allowed banks and financial institutions (BFIs) involved in merchant banking to engage in other activities too. Poudel said that BFIs had already been barred from doing merchant banking and BFIs wishing to engage in merchant banking have to form a separate subsidiary company to do so. “Given this context,   the provision preventing merchant bankers from engaging in other businesses was proposed,” he said.

Likewise, the proposed regulation has also inserted a provision that any company failing to publish its audited report for the last two years cannot purchase promoter shares of merchant banks. As per the current rule, this prohibition applies to companies not publishing their audited reports for the last three years. The proposed policy has also included a detailed provision regarding ownership transfer. The existing regulation only talks about handing over the ownership to firms that are recognized as qualified firms. The proposed regulation has added the procedures for doing so. As per the proposed regulation, a shareholder of a merchant bank first has to submit to Sebon the paperwork related to the shares to be sold or handed over.

Likewise, as the current regulation does not have a provision regarding extension of the deadline for renewing the licence, the proposed regulation has inserted a provision that Sebon can stretch the time limit for three months, but a penalty amounting to 25 percent of the annual fee will be levied.