KARACHI, Jan 11: In a major move to strengthen and consolidate the country’s financial sector, the heads of two chief regulatory bodies—Securities and Exchange Commission of Pakistan and the State Bank of Pakistan—jointly announced a plan to transform old model of more than 100 Non-Banking Financial Institutions (NBFIs) into lesser but stronger Non-Banking Finance Companies (NBFCs).

Chairman SECP, Khalid Mirza and Governor SBP, Ishrat Hussain addressed a joint press conference at the Central Bank’s head office in Karachi on Friday. They were flanked by the executive director, SECP, Sadia Khan; commissioner, securities market, Shahid Ghaffar and other officials from both sides.

The heads of the two autonomous regulatory bodies said that as remodelling of the NBFI, a Non-Banking Finance Company (NBFC) would be allowed to be established, which would be authorized to undertake all financial services except the banking functions. “The activities to be undertaken by an NBFC include corporate advisory services, leasing, house finance, venture capital, discounting services and investment advisorship for managing closed-end mutual funds and asset management for open-end mutual funds,” they said.

With effect from July 1, 2002, all non-bank financial institutions would be regulated by SECP, eliminating the existing overlapping of regulatory jurisdiction over NBFIs by the SECP and the SBP; institutional mechanism for closer coordination between the SECP and the SBP was already put into place.

The regulators observed that the objective of introducing this new model of NBFC was to offer a wide variety and range of financial products tailored to the needs of customers through a one window operation. By bringing together all non-banking services under one umbrella of a NBFC, the regulators said, they expect the operating efficiency of companies will improve, profitability enhance and cost of services to consumers decline. “It is also logical to link the minimum paid-up capital requirements of NBFC with the kind of activities it would undertake,” the regulators said and unveiled the following minimum paid-up capital requirement for each activity: Investment and corporate: Rs100 million; advisory services—leasing: Rs200 million; housing finance: Rs100 million; venture capital: Rs5 million for a company and Rs50 million for the fund; discounting services: Rs200 million and Investment advisors (for closed and open end mutual funds): Rs20 million.

Other features of the re-modelled NBFC included: (i) Licence for each activity would be issued by the regulator on being satisfied about availability of expertise and resources required for that activity. NBFC shall be a single legal entity and would have separate divisions for each category of business activity; (ii) While all non-bank financial institutions to be established in the future shall have to be incorporated as NBFCs even for performing a single business activity, the existing non-bank financial institutions would have the option to become an NBFC; (iii) The existing investment banks would be allowed to continue to operate in accordance with the regulatory frame-work in future, but no fresh licence would be issued for investment banks in the present shape. Instead, licence would be issued to institutions desiring to perform investment and corporate advisory services like underwriting and other capital market related activities; (iv) Commercial banks proposing to undertake leasing business shall have to establish subsidiaries for the purpose and (v) existing rules of business prudential regulations formulated by SBP for NBFIs would continue to apply for the time being. However, the regulator would review those regulations and keep updating those in response to changing conditions.