The Securities and Exchange Commission of Pakistan (SECP) has initiated a significant step towards refining the regulatory framework for Non-Banking Finance Companies (NBFCs) by proposing amendments to the NBFC (Establishment & Regulations) Rules of 2003.
This move, aiming to modernize and streamline the sector, invites public feedback on the proposed changes, according to a report by Dawn.
The SECP’s review of the current regulations acknowledges the evolving landscape of the NBFC ecosystem and the need for effective yet flexible regulatory oversight.
In line with this, the proposed amendments are set to eliminate certain outdated and excessive approval processes and requirements, thereby easing operational burdens on NBFCs.
Key changes include the removal of the approval process for determining the rate of profit on subordinated loans and the requirements for their repayment. Additionally, the provision that mandated applying for a license within six months of the rules’ notification has been deemed obsolete and is proposed to be omitted.
The SECP has also recognized the redundancy of requiring companies’ promoters or majority shareholders to submit an undertaking for the sale or transfer of shares without prior Commission approval. Consequently, this requirement is suggested for elimination.
Moreover, the current stipulation that demands evidence of qualifications and experience for individuals in executive or research roles is considered excessive and is proposed to be removed. This change is anticipated to facilitate smoother operations within both existing and new NBFCs.
With technological advancements significantly impacting financial services, the SECP proposes the introduction of digital-specific licensing requirements. This includes provisions for lending and microfinance services offered through digital channels like mobile applications.
The proposed amendments also highlight the importance of identifying major shareholders, funding sources, and providing undertakings on fund sources. Furthermore, once amended, the rules will mandate NBFCs to maintain membership in relevant microfinance associations, fostering a supportive environment.
This includes amending Schedule-I to allow existing companies the opportunity to convert into an NBFC, thereby opening new pathways for financial institutions to evolve within Pakistan’s dynamic financial landscape.
