ISLAMABAD, Oct 16: The government has decided to set up an independent regulatory authority for all commercial banks.

Official sources told Dawn here on Wednesday that a Financial Services Authority (FSA) will be set up on the pattern of the United States to regulate commercial banks in Pakistan.

The State Bank of Pakistan will only be responsible for the monetary policy of the commercial banks, while the rest of the regulatory work will be handled by the proposed FSA.

And the non-baking functions will be handed over to the Security and Exchange Commission of Pakistan (SECP).

Sources said that the federal cabinet here on Wednesday approved amendment in the Companies Ordinance to transfer supervisory role to SECP for all non-banking companies including investment financial services, leasing houses, venture companies, investment advisory services, assets management services and modarabas.

The cabinet approved the amendment in the ordinance when told by Minister for Finance Shaukat Aziz that non-banking financial institutions were important part of the financial system and it was necessary to properly regulate and strengthen these institutions.

In line with the international practices, the government took a decision earlier this year to consolidate the regulation of all non-banking institutions under one roof—under the regulatory ambit of SECP and also to promote the concept of non-bank finance companies—essentially an umbrella approach whereby the same NBFC can be licensed to engage in one or more activities or financial services, provided it meets the prescribed regulatory criteria for each of these services.

The cabinet was informed that the proposed amendment essentially confers regulatory authority on the SECP that is no more than that enjoyed by the State Bank and simply provides legal framework and cover for the regulation of NBFCs by the SECP under rules to be framed by the federal government.

The sources said that Minister for Commerce and Industry Abdul Razak Dawood objected to offering what he termed too much powers to SECP to regulate all non-banking institutions.

However, President Pervez Musharraf, who presided over the meeting, did not entertain the objections of the commerce minister and agreed with Shaukat Aziz that the SECP should be handed over the regulatory control of all the non-banking financial institutions.