June 25: the Securities and Exchange Commission of Pakistan (SECP) has revamped the regulatory framework for the mutual funds industry with an aim to meet the changing industry dynamics, implementing international best practices, safeguarding investors’ and providing ease of doing business.
After a lengthy consultative process with the Mutual Fund Association of Pakistan (MUFAP) a number of measures have been introduced recently which include replacing seed capital requirements of Rs200 million with minimum fund size of Rs100 million to offer flexibility in launching new mutual funds. The SECP also allowed to charge selling and marketing expense to fund, charging of back office accounting expenses and granting permission for charging sales load on direct investment and on-online investment which was earlier restricted.
In order to promote ease of doing business the Commission on June 20, 2019 also approved further amendments in the NBFC Regulations 2008 to provide for operational flexibility to Asset Management Companies (AMCs). This includes enhancing the expense ratio cap for equity funds from 4% to 4.5% of the net assets, removing all sub caps particularly regulatory caps imposed earlier on the management fee, excluding all government levies/charges from the expense ratio. Moreover, to facilitate the expansion of outreach of mutual funds, AMCs have been allowed to charge Selling and Marketing expenses including Alternative Delivery Channels expenses to all categories of funds without any time and sub-limit.
Further, to reduce the operational burden on AMCs the Commission has also removed different requirements of regulatory approvals for mutual funds. AMCs are allowed to make changes in Constitutive Documents (other than changes in the Fundamental Attributes of the fund) including the changes with respect to change of regulatory requirements without the approval of the Commission. Separate requirement for approval of the Commission for appointment of trustee of each new CIS has also been withdrawn. The validity of the Commission’s approval for constitutive documents has been extended from 60 days to 120 days.
The above measures have been introduced to facilitate the growth of the mutual funds industry and to provide a more facilitative and robust environment for the sector.