Regulators are like football referees. The latter runs along the ball, as much as he can, across the field and instantly intervenes upon foul play. Players' stardom or the team's elite profile is immaterial to him.

But regulatory institutions stand with rickety structure on soft legal grounds in Bangladesh. Prized appointments lacking professional acumen further erode regulatory authority. This pervasive shortcoming distorts the market due to routine extra-regulatory interventions, which also ridicule the law. Mobile financial service (MFS) provider named "Nagad" is a textbook example of such surreal noncompliance.

Its website's "About us" section claims, "Nagad is a venture by the Bangladesh Post Office that facilitates the day-to-day financial transaction needs of the people." The website, however, neither says how much share the government owns nor it reveals the composition of management or board. Nagad does not exist in the postal department's website either. Yet this government department's emblem is displayed in Nagad's logo.

Nagad deals with the same products and services like 16 other licensed MFS providers do. But since inception on March 26, 2019, Nagad operates without MFS licence from Bangladesh Bank. It functions with a no-objection certificate (NOC) instead and keeps dodging a licensee's regulatory compulsions.

"But the central bank was forced to extend the time frame of the NOC by three months (June 2021) as the operator has failed to complete all the procedures," reported The Daily Star. Nagad has, predictably, missed that deadline too and Bangladesh Bank has "graciously" extended the NOC for another three months (September 2021).

In the same report, Nagad has claimed having discussions with Amazon, Facebook and Google as potential investors. But director general of the postal department has denied such meeting.

In the backdrop of these ambiguities, Bangladesh Securities and Exchange Commission has approved Nagad's plan to raise Tk 510 crore through issuing a zero coupon bond with Tk 750 crore face value, said a report of The Daily Star. Nagad has Tk 416 crore in debt, of which it plans to pay off Tk 350 crore through the bond issuance. Recently the chairman of BSEC has promoted this move at a roadshow in New York. It is unbecoming of the capital market regulator.

The BSEC should have highlighted Nagad's legal, structural and operational shortcomings before the potential investors. It reminds what the credit rating agencies (CRA) did in America before the 2008 financial meltdown. They lowered the perceived credit risk by giving AAA ratings to unclearly structured finance products like collateralised debt obligations. It misguided the investors and the market imploded. But the CRAs have never endorsed any entity that lacks legitimacy.

The BSEC has acted like a pseudo CRA while promoting Nagad. Normally it does not allow initial public offering unless a company is profitable for at least three consecutive years. That very regulator now allows bond offering by the unlicensed Nagad, whose balance sheet also remains out of any oversight of the central bank.

Unusually treated Nagad now resorts to Parkinson's Law – "A luxury, once enjoyed, becomes a necessity." Indulging the luxury of unabated regulatory noncompliance sets bad precedence in the capital market. And the BSEC not disclosing the whole truth for investors is the last thing Bangladesh needs.

The writer is a senior policy fellow at LIRNEasia.