The revised framework introduces three approaches for calculating capital requirements on fund investments, with banks and development finance institutions required to comply from December 31, 2026.
ISLAMABAD, October 24, 2026: The State Bank of Pakistan (SBP) has revised capital adequacy rules governing banks’ and development finance institutions’ (DFIs) investments in collective investment schemes, mutual funds, private equity funds and venture capital funds, aligning the framework with the latest regulations issued by the Basel Committee on Banking Supervision.
In a circular dated October 23, 2026, addressed to the presidents and chief executives of all banks and DFIs, the central bank said the revised instructions would replace Chapter 4 of BPRD Circular No. 6, issued on August 15, 2013. The new rules will take effect on December 31, 2026.
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Under the revised framework, banks and DFIs will determine capital requirements according to the availability and reliability of information about the underlying assets of individual funds. Three approaches have been introduced: the Look-through Approach (LTA), Mandate-based Approach (MBA) and Fall-back Approach (FBA).
Under the Look-through Approach, institutions can calculate capital charges using the actual risk weights of a fund’s underlying assets, provided sufficient information is available at an appropriate frequency and independently verified by a third party. Where banks rely on third-party calculations because they lack adequate information, risk weights 1.2 times higher than the applicable weights will be applied to the underlying assets.
The Mandate-based Approach applies when the requirements for the Look-through Approach are not met, but reliable information about the fund’s investment mandate is available. Institutions must assume the fund invests to the greatest extent permitted in assets attracting the highest capital requirements before considering lower-risk assets.
Where neither approach can be applied, the Fall-back Approach requires a 1,000 per cent risk weight on investments in the fund.
The revised instructions also address investments in funds that invest in other funds, setting conditions for calculating risk weights across multiple investment layers.
Banks and DFIs may classify fund investments in their banking or trading books according to their investment objectives and the nature of the securities. Banking-book investments will be subject to the standardised credit-risk approach, while trading-book investments will attract market-risk capital charges under relevant SBP instructions.
The framework also introduces a leverage adjustment for calculations under the Look-through and Mandate-based approaches, capped at a 1,000 per cent risk weight. Investments in real estate investment trusts (REITs) will be classified in the banking book and carry a 100 per cent risk weight.
The circular further clarifies that significant minority or majority investments in asset management companies will be subject to existing SBP rules governing investments in the capital of banking, financial and insurance entities.