KARACHI - The Securities and Exchange Commission of Pakistan (SECP) has unveiled the ‘Report of Non-Bank Financial Sector (NBFS) Reforms Committee’ for public feedback. Report contains proposed reforms for the development of the NBF sector in Pakistan.

Addressing the ceremony, Muhammad Ali, Chairman SECP, said that it is imperative that the SECP and the SBP should work in close cooperation for effective and seamless regulation across the financial sector in a globally integrated market. He said that Pakistan’s financial sector is banking centric with the NBF sector accounting only 4.9%—excluding insurance sector—of the financial sector’s total assets. This dependence on the banking sector makes our financial system vulnerable to risks through lack of diversification and also restricts the scope of product innovation.

A strong NBF sector will not only promote savings by offering different asset classes to the investors, but will also provide alternative fund raising opportunities to the participants of financial system, he added.

The report highlights that more than 70% of the assets of the financial sector are with commercial banks and only 9% are with the non-banking sector which includes NBFCs, insurance, etc. Out of the remaining assets, around 17% are with the National Savings schemes.

The report suggests some revolutionary ideas to reform the financial sector. The suggested reforms are aimed at development of an alternate financial system by way of promoting NBF sector. It is imperative to diversify the inherent systemic risk and provide different asset classes to promote savings as well as cater to the specific needs of participants through product innovation.

In order to develop NBF Sector, in line with international best practices, the report proposes implementation of the concept of activity based regulatory regime in Pakistan. In terms of the proposed regime, capital market activities of all entities including that of commercial banks and DFIs are to be regulated by SECP and deposit taking/ financing/ lending activities of all the financial sector participants would be regulated by the Banking Regulator.

 (BR), i.e., SBP.

This recommendation is in contrast with the prevalent concept of entity based regulatory domain in our country.

Other proposed reforms for mutual fund industry include distribution of mutual fund units through the stock exchanges, reduction in the annual regulatory fee provided more than 50% of a funds’ net assets are held by retail clients, introduction of concept of expense ratio, introduction of multiple classes of units based on the investment amount, improving the skill set of key personnel such as fund managers by specifying the minimum criteria, etc.

The NBFS reforms committee comprised of leading market professionals and senior SECP officials made an in-depth review of the whole business model and prevalent regime for this sector. Commissioners and leading professionals and businessmen from the financial sector attended the ceremony.