ISLAMABAD, March 28: The Securities and Executive Commission of Pakistan is busy giving finishing touches to comprehensive rules for the non-bank financial institutions (NBFIs) which are slated to come under its purview from next July.
This was disclosed by SECP chairman Khalid A. Mirza while talking to Dawn here on Thursday. At present, these institutions are subject to regulation by the State Bank.
In reply to a question, the SECP chief explained that a single set of rules would govern all different kinds of NBFIs, including leasing companies, investment banks, DFIs, mutual funds, etc. The broad objective was to modernize the entire sector with a view to expanding the capital market, making it efficient and progressive in its outlook.
Although these institutions, over all, had worked well in their respective spheres in recent decades, it was also a fact that these had resulted in fragmentation of the financial sector. The proliferation of institutions engaged in certain specialized activities were characterized by inadequate capital, weak human resource base, low access to technology and high costs of operations.
It had, therefore, been decided to bring about some fundamental changes in the way the non-banking financial services operate so that a single non-banking finance company (NBFC) would be able to provide all the non-banking services such as leasing, investment banking, housing finance, venture capital, asset management, discounting services and investment advisory services, Mirza stated.
The larger size of the company with a common budget for all these activities would provide it with economy of scale thus enabling it to expand its risk absorption capacity.
While framing the rules, one aspect being kept particularly in view was to ensure that the regulation of NBFIs was flexible and helpful. These rules, instead of the principle of ‘sudden death’ and outright revocation of licence irrespective of the degree of offence, would provide different punishments for different grades of violation, the SECP chairman stated.
Asked whether the commercial banks would continue to engage in leasing business, he replied in the affirmative, adding, however, that, in order to do so, they would have to establish separate subsidiaries for the purpose.
About the future direction of the SECP in its agenda of capital market reforms, the SECP chairman said in the first phase the commission had focused on the demand side.
The commission has also set up a consultative group for capital market comprising, besides senior officials of the SECP, eminent persons from the market, banks, etc., in order to obtain their feedback on various measures adopted by the SECP and any suggestions for further improvement. The first meeting of the group was held last month.
During the second phase, for which the Asian Development Bank had indicated its willingness to advance a loan of $250 million, the focus of the SECP would be on capacity building, improvements in corporate governance and further strengthening of the capital market.