ISLAMABAD, Nov 18: All the non-bank financial institutions (NBFIs) will stand transferred to the regulatory control from the State Bank of Pakistan to Securities and Exchange Commission of Pakistan (SECP) with effect from December 1.

This was decided at a coordination meeting between SECP and SBP, which was held here on Monday as a follow-up of the promulgation by the government of Pakistan last week of ordinances to amend relevant clauses of the Banking Companies Ordinance, 1962 and the Companies Ordinance, 1984.

SECP Chairman Khalid A. Mirza and SBP Governor Dr Ishrat Hussain were among participants of the meeting.

Commenting on the long-awaited legal authorization, Mirza remarked that the NBFC wing of SECP was fully geared to take on the additional responsibility of regulating the NBFIs. In fact, the transfer to the Commission was originally mooted to take place last July 1, but delayed for want of legal cover.

As a result of the decision, the entire non-banking financial sector, which comprises investment banks, discount houses, housing finance companies and venture capital companies would come under regulatory arm of the Commission.

The main objective behind the introduction of NBFCs, the SECP chairman told Dawn, was to consolidate the activities of NBFI sector. Consolidation, in its turn, was expected to lead to a reduction in operating expenses as well as strengthening of the capital base of these companies, thereby providing a fillip for the future development of this sector.

It also clears the way for implementation by SECP of the Non- Bank Finance Company (NBFC) concept that envisages bringing together all non-banking services such as leasing, investment banking, housing finance, venture capital investment, asset management, discounting services and investment advisory services.

He envisioned the role of NBFC model as helping in consolidation and strengthening of these institutions so that they could be in a position to face the challenges ahead.

During the meeting, he said, he had also emphasized that the SBP encouraged banks/DFIs to provide margin financing against shares to retail investors. Introduction of margin financing by banks would help in diversifying equity ownership, reducing systemic risk and eliminating parallel banking activity carried out under the name of COT (badla) financing.

At present, he went on to observe, stock market investors, particularly retail investors, were dependent on COT financing in the absence of margin finance facilities from banks. Although the COT market had played a significant role in enhancing market efficiency and liquidity, it did not conform to recognized international practices, he added.

It had, therefore, been decided to replace COT financing with margin financing by banks and stock-brokers in a phased manner. Development of the futures market was also an important step in this direction, he remarked.

Dr Ishrat Husain appreciated SECP’s road-map for phasing out COT and held out the assurance that the SBP would provide the necessary assistance in this regard.