SECP revamps regulatory framework for NBFCs
ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP), with approval of the federal government, has notified amendments in the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003.
The SECP has also introduced amendments in Non-Banking Finance Companies and Notified Entities Regulations, 2008 and notified Private Fund Management Regulations, 2015. The notifications regarding these amendments are available at the SECP website www.secp.gov.pk.
Through the said amendments, the regulatory framework for NBFCs has been revamped to make it more conducive and practicable.
NBFCs have been categorised into two categories, i.e. Lending NBFCs and Fund Management NBFCs.
The concept of small and mid-sized non-deposit taking NBFCs has been introduced with significantly reduced equity requirements of Rs 50 million only. Contrary to the former regime, the companies other than NBFCs have been allowed to carry out lending activities subject to fulfillment of prescribed eligibility criteria.
A new class of NBFCs, i.e. Non-Bank Micro Finance Companies, along with comprehensive framework for providing finance to poor persons and micro enterprises has been introduced. The existing Non-Bank Micro Finance Institutions would also be regulated under NBFC regime.
Concept of alternative funds for high net worth investors has been introduced by prescribing a separate framework for private fund management. This would facilitate the launching of different types of funds like hedge funds, infrastructure fund, SME fund and debt fund, as per the risk appetite of eligible investors.
On the fund management side, asset management companies (AMCs) have been allowed to undertake other fund management activities i.e. REIT management services and management of private pool of funds.
For mutual fund industry, concept of expense ratio, including reduction in management fee, has been introduced to cap the maximum expenses that can be charged to a mutual fund and to improve investors’ return. Requirements for AMCs to formulate a board approved by proxy voting policy, employee-trading policy and conduct requirements for fund managers covering the fiduciary responsibilities, have also been prescribed in line with international practices and IOSCO principles.
As part of SECP’s continuous efforts for the sustainable development of NBFCs, the amendments are intended to provide a more conducive regulatory environment for development of non-bank financial sector in Pakistan.