ISLAMABAD, Nov 30: Securities and Exchange Commission of Pakistan has finalized all arrangements to assume the responsibility of regulating the entire Non-Banking Financial Sector from December 1 under the powers vested in it through recently promulgated amendments in company and banking companies laws.

As a result, the corporate sector has been divided into two sectors for the purpose of regulation and supervision namely, banking and non-banking.

“There will not be a single day’s gap in monitoring of NBFIs,” SECP Commissioner Etrat Rizvi told Dawn, as the SECP had already recruited the necessary legal staff and streamlined its functioning for the purpose. This is understandable because the NBFIs were to be transferred to SECP with effect from July 1 last as per Memorandum of Understanding signed by the Commission with the State Bank in the first month of 2002.

The companies which have come under regulatory purview of SECP include 14 investment banks, 4 housing finance companies, 2 mutual funds (NIT and ICP) and 3 discount houses. Besides, leasing companies and modaraba companies were already being regulated by SECP.

The SEC, in its first directive after taking them over, has directed the NBFIs to continue to send their relevant returns to the Credit Information Bureau of the State Bank as before. Thus the data about the borrowings by corporate sector entities would be jointly monitored by SBP and SECP.

A capital market observer was, however, of the view that the separation between the operations of commercial banks and NBFIs was still not complete. For example, he said, the commercial banks, regulated by the central bank, continue to conduct leasing business.

Leasing is a very specialized business requiring the kind of expertise and sympathetic handling foreign to the nature of banking as such. In early 1980s, he recalled, the government had allowed five commercial banks to engage in project financing under IDA credit line. The entire scheme was a dismal failure.

In the interests of the development of medium and small scale enterprises sector, it was essential that leasing business be separated from the commercial banks, he argued, citing the example of how these enterprises suffered at the hands of the commercial banks.

Mr Rizvi, who is also responsible for monitoring the insurance business, said that the SECP would shortly issue a code of conduct for the insurance companies.

Ever since insurance companies came under its ambit, SECP had played not only regulatory but also proactive role in the strengthening of insurance business in Pakistan. He cited the action taken by the SECP to regularise the Third Party insurance business in Pakistan by writing to the Excise and Taxation departments to ensure that only genuine companies sold third party insurance to owners of vehicles, etc.

He said the Commission had raised the paid-up capital for non- life insurance companies to Rs50m and that for life insurance companies to Rs100 million.

Out of 49 insurance companies in Pakistan, 26 had already fulfilled the requirement. As regards the remaining 23 companies, the Commission has given them December 31 as deadline to implement the SECP directive. After that date, Mr Rizvi said, the SEC would take further steps to improve the insurance business as a vital segment of corporate sector both in the interests of companies as well as policy holders.

The Commission has also set up a complaint cell in its Insurance Division to address the grievances of policyholders.

Here, too, a lacuna lingers, an insurance insider remarked. He referred in this connection to the insurance business being carried out by the Pakistan Post Office department. For this part of its operations, the department answers to the Ministry of Finance. Intriguingly, Postal Life Insurance has not been transferred to regulatory supervision of SECP.

As the mainstream insurance business has been transferred by the Ministry of Commerce to the SECP, the persistent dichotomy in monitoring and regulating of the insurance business is likely to serve as a drag on the process of modernising and strengthening the insurance sector, it is feared.

Nevertheless, it is clear that the bureaucracy in the ministries is adamant to defending its turf with all the subterfuges at its command. Thus the Commerce Ministry has yet to approve the rules submitted by SECP more than a year ago for implementation of the Insurance Act, 2000.