SECP notifies Collateral Management Companies to promote warehouse receipt financing

August 2, 2019: SECP has notified Collateral Management Companies (CMC) Regulations, 2019 under the Companies Act, 2017 to promote warehouse receipt financing and electronic trading of agricultural commodities.

Under these Regulations, any public limited company with a minimum paid-up capital of Rs. 200 million will be eligible for seeking permission of SECP to register as a CMC. A CMC, through its accredited warehouses, will provide storage and preservation services for a range of agricultural commodities. In doing so, a CMC, through its electronic warehouse receipt system, will issue warehouse receipts which can be used by farmers/depositors of agricultural commodity for financing from financial institutions and trading of electronic warehouse receipt at the exchange. The CMC will play an effective role in the agriculture value chain by ensuring security of collateral stored in the accredited warehouse through its robust oversight mechanism.

Earlier, the SECP through a notification dated July 2, 2019 issued draft regulations for public consultation. During this consultative process, comprehensive deliberations were carried out with key stakeholders including the State Bank of Pakistan, Pakistan Banks Association, Pakistan Agricultural Coalition, Pakistan Mercantile Association and commercial banks. After incorporating comments of the stakeholders, the regulations have been notified.

Salient amendments, after public consultation, include reduction in the registration fee of a CMC, removal of requirement for periodic accreditation, easing of documentary requirements for sponsors of a CMC, allowing electronic warehouse receipt to be traded on the exchange, and according enforcement powers to the CMC for cancelling accreditation of warehouse upon occurrence of certain events. SECP envisages that these amendments would help support its overall strategic objective of promoting ease of doing business.

Promulgation of these regulations, in addition to providing a well-designed collateral management system, is envisaged to complement the agenda of the Government for uplifting agriculture sector which entails improved access to finance for farmers, improved farmer profitability and reduced risk for creditors through secure collateral.

The SECP has placed the regulations on its website.