May 22, 2022 (MLN): The Securities and Exchange Commission of Pakistan (SECP) has released its annual report for the fiscal year 2020-21. The report covers the reforms undertaken with the objectives to ensure effective enforcement, improve access to finance, encourage capital formation, simplify regulatory processes and reduce costs of doing business.
SECP Chairman Aamir Khan, in his message published in the report, said “the need for accountability and transparency was higher than ever; SECP centralized the function of supervision and strengthened its litigation team to further SECP’s ability to operate as a focused, transparent and accountable regulator”.
In FY 2020- 2021, aimed at ensuring consistent, more transparent and focused regulatory oversight across sectors, SECP established a centralized Supervision Division to adopt an integrated enforcement strategy and uniform decision making. Enhanced enforcement resulted in the initiation of winding-up proceedings against 22 companies, imposition of penalties of up to Rs5 billion and debarment of their sponsors from becoming directors of any other company or incorporating any new company. These companies were involved in fraudulent activities.
During the year, the FATF Asia Pacific Group (APG) assessors rated Pakistan largely compliant with all SECP relevant 54 recommended action items of MER 2019.
In order to improve access to finance for SMEs and startups, SECP notified amendments to Companies (Further Issue of Shares) Regulations to enable private companies to raise capital by receiving immovable property, intangible assets and services from potential investors.
To promote investment in the real estate sector through Real Estate Investment Trusts (REITs), SECP revamped the regulatory framework of REITs and introduced a new Public-Private Partnership (P3) model. The major revamp led to the approval of the first shariah-compliant Developmental REIT Scheme. In addition, during the year licenses were granted for three housing finance companies; two investment finance services and to a microfinance services company.
In November 2020, the SECP registered Pakistan’s first collateral management company (CMC), which will provide storage and preservation services for a range of agricultural commodities. The CMCs issue electronic warehousing receipts (EWR) against commodities. The EWR can be traded electronically and used to obtain loans from banks.
The SECP also implemented several reforms for the development of the capital market and increased the investor base. The market-related reforms included the introduction of a framework for corporate debt and government debt securities; introducing the concept of direct listing at PSX to facilitate listing of SOEs; regulatory frameworks for 'Debt and Hybrid ETF; and the introduction of '90 days Deliverable Futures Contracts. As a result of these measures, the Pakistani market witnessed 10 IPOs i.e. eight (08) equity and two (debt) issues. All these IPOs were oversubscribed. Pakistan’s first Shariah-compliant ETFs and three other ETFs were also launched.
Further, during the said year, the SECP achieved a major milestone by implementing a new regime to regulate stock market brokers. The new regime consisted of a comprehensive regulatory framework of Professional Clearing Member (PCM), that provided a level playing field in the stock market and institute enhanced confidence of investors.
Moreover, to facilitate investors, the process of account opening at PSX, as well as with AMCs was completely digitalized and Pakistan’s first mutual fund digital distribution platform, “Emlaak Financials” was launched by IT Minds Limited. To enable Non-resident Pakistani individuals to invest in PSX and units of private funds, necessary framework and amendments in Foreign Exchange Manual were introduced in collaboration with SBP.
His statement further read, “I firmly believe that a regulatory regime that is too harsh or too inflexible, provides ideal breeding ground for undesirable schemes. It is with this mindset that SECP is simplifying its regulations and has launched its regulatory sandbox to encourage innovative ideas and solutions in the field of the capital market, NBFCs and insurance”. In the first cohort of the regulatory sandbox, six applicants, including a crowdfunding and P2P lending platform were allowed to test their business models.
Providing ease of doing business, reducing costs and promoting startups was another focus area during 2020-21. The company registration regulations were completely revamped to remove redundancies, and regulatory overlaps and to simplify processes. A state-of-the-art Business Centre was established to centralize the processes and facilitate new incorporations. The company incorporation process was end-to-end digitalized by the launch of 'Electronic Certificate of Incorporation'. A portal that enables banks to digitally extract documents (from the SECP registry) for the swift opening of corporate bank accounts.
As a result of these measures, Pakistan achieved a record 52% growth in new incorporations. A total 25,533 new companies were registered in FY2020-21, raising the number of registered companies to 145,913 as of June 30, 2021.
The SECP’s Chairman Aamir Khan said, “during the current fiscal SECP’s foremost focus will remain on continuous improvement of the enforcement regime through upskilling the workforce, using technology and strengthening the litigation function.” This year, Khan said, while moving further towards a functional-based structure, the SECP will centralize its licensing function. The report can be accessed at https://www.secp.gov.pk/document/annual-report 2021/?wpdmdl=44660&refresh=6288cfa0c31c61653133216 .