KARACHI, Oct 31: The State Bank of Pakistan has proposed amendments to Banking Companies’ Ordinance (BCO) 1962 for bringing all deposit-taking Non-Bank Financial Companies (NBFCs) like investment banks, leasing companies and housing finance companies under its control.

SBP Governor Dr Shamshad Akhtar while delivering a keynote speech on “Pakistan: Framework for Consolidated Supervision”, at the 58th Annual General Meeting of the Institute of Bankers Pakistan (IBP), here on Friday, disclosed that the cabinet had already approved the proposed amendments and they would be tabled for the consideration of the parliament.

The SBP governor justified her proposals saying that the current legislation and regulatory tools were not adequate to effectively address the threats to safety and soundness of the financial sector.

She said that the rationale behind this move was that these NBFCs were engaged in activities which were quite incidental to banking both on the liability as well as asset side. “Bringing such entities under the central bank would lead to greater supervisory efficiency as being the regulator of banks its supervisory approach is well-equipped for their kind of business,” she elaborated.

She said another amendment to the BCO was to authorise the SBP to designate and regulate the financial groups.

Financial group for this purpose will be any group containing at least one of the entities, directly regulated by the SBP, Dr Shamshad said. “This is an extremely important step because it will enable the State Bank to effectively monitor the intra-group potentially dubious transactions involving banks and NBFCs and will also enable it to curtail the possible contagion risk,” she added. The proposed amendments would also enable the SBP to seek information from the unregulated commercial entities and conduct limited inspection for verification of such information. “The SBP is positioning itself to grab massive power to dominate the finance and financially related markets,” she explained.

The SBP governor pointed out that this was a timely move in the wake of potential risks arising from complex structures of financial groups and emergent supervisory challenges.

She said the objective of these amendments was to strengthen the oversight of financial sector in accordance with the “Ten Year Strategy and Blueprint of Financial Sector Reforms” of the State Bank of Pakistan.

The SBP, as a part of its overall financial sector reforms launched in July 2008, has been advocating the need for legislature to empower the central bank to augment its oversight of the financial sector.

In July 2008 the financial bubbles burst in the United States and moved fast towards Europe to engulf the entire world economies.

The SBP governor said the banking sector being at the core of all activities of the financial sector, its safety and soundness was critical for public, financial sector itself and the economy as a whole. She observed that for entities in a financial group, which are falling under securities regulator’s supervision, current supervisory mechanism also needed to be amended to move towards greater consolidated supervision.

The time is ripe for the introduction of a Financial Holding Company (FHC) concept. “In order to facilitate the FHC model, we are also proposing several amendments to the BCO covering its definition, licencing and supervision (which will be by the SBP), capital requirement and various other aspects,” she added.