The Securities and Exchange Commission of Pakistan (SECP), with the approval of federal government, has notified amendments in Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003.
The SECP has also introduced amendments in Non-Banking Finance Companies and Notified Entities Regulations, 2008 and notified Private Fund Management Regulations, 2015. The notifications regarding these amendments are available at the SECP website www.secp.gov.pk.
Through the said amendments, the regulatory framework for Non-Banking Finance Companies (NBFCs) has been revamped to make it more conducive and practicable. NBFCs have been categorized into two categories i.e. Lending NBFCs and Fund Management NBFCs.
The concept of small and mid-sized non-deposit taking NBFCs has been introduced with significantly reduced equity requirements of Rs 50 million. Contrary to the former regime, the companies other than NBFCs have been allowed to carry out lending activities subject to fulfillment of prescribed eligibility criteria.
A new class of NBFCs i.e. Non-Bank Micro Finance Companies along with comprehensive framework for providing finance to poor persons and micro enterprises has been introduced. The existing Non-Bank Micro Finance Institutions would also be regulated under NBFC regime.
Concept of alternative funds for high net worth investors has been introduced by prescribing a separate framework for private fund management. This will facilitate launching of different types of funds like hedge funds, infrastructure fund, SME fund, debt fund etc as per the risk appetite of eligible investors.
The concept of Capital Adequacy Ratio (CAR) has been introduced for deposit raising NBFCs and deposit raising ability of NBFCs has been linked with equity, credit rating and CAR requirements. Existing NBFCs have been allowed one year to comply with the new minimum equity, CAR and rating requirements.
On the fund management side, Asset management companies (AMCs) have been allowed to undertake other fund management activities i.e. REIT management services and management of private pool of funds.
For mutual fund industry, concept of Expense Ratio including reduction in management fee has been introduced to cap the maximum expenses that can be charged to a mutual fund and to improve investors’ return. Requirements for AMCs to formulate Board approved proxy voting policy, employee trading policy and conduct requirements for fund managers covering the fiduciary responsibilities have also been prescribed in line with international practices and IOSCO principles.
As part of SECP’s efforts for the sustainable development of NBFCs, the amendments are intended to provide a more conducive regulatory environment for development of non-bank financial sector in Pakistan.