ISLAMABAD: Securities and Exchange Commission of Pakistan (SECP) on Wednesday announced regulatory relief for corporate sector in order to dilute impact of coronavirus.
(more…)Tag: SECP
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SECP discusses stock market situation
ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has discussed the situation of the stock market, which triggered halt for third time in this week.
The SECP team lead by the Chairman SECP and Commissioner(SM) held a detailed meeting with the CEOs of Pakistan Stock Exchange, National Clearing Company and Central Depository Company (Self-Regulatory Organizations – SROs) this morning, to review and discuss the stock market situation, risk management and business continuity.
The index based market halts were triggered for the third time during this week. This cooling-off period gave an opportunity to investors to align their trading strategy and collection of margins by the Clearing Company.
The participants of the meeting affirmed that risk management system was functioning efficiently and margins were being collected timely.
The Market operations were running smoothly as a whole. The SROs further apprised that their business continuity plans and disaster recovery setup was in place based on SECP’s earlier instructions.
The Chairman SECP emphasized on conducting drills to ensure remote operations of trading, clearing, settlement and custody services while allowing remote access of market participants to such systems in case onsite operations or physical access was impacted.
He also suggested adoption of further preventive measures against spread of coronavirus.
The SECP advised SROs to remain vigilant, continue to provide uninterrupted access to market participants and ensure effective risk management while maintaining actively engagement with their boards of directors and committees for close coordination.
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SECP issues advisory for companies on coronavirus threat
ISLAMABAD: Securities and Exchange Commission of Pakistan (SECP) on Thursday issued advisory for companies to protect from coronavirus threat.
In light of the threat posed by the evolving COVID-19 situation (Corona Virus) and to protect the wellbeing of shareholders, the SECP advised all companies to modify their usual planning for annual general meetings.
Meeting of the Board of Director may also be held through tele / video conferencing.
SECP has recommended all companies to consider and evaluate the risks in the present situation.
Every company, is required to hold, an annual general meeting (AGM) within sixteen months from the date of its incorporation and thereafter once in every calendar year within a period of 120 days following the close of its financial year.
As AGM season for December end companies is approaching, the directors and secretaries should modify their usual planning for their company’s AGM in light of the threat posed by the evolving COVID-19 situation.
Directors should consider if members can consolidate their attendance and voting at AGMs into as few people as possible through proxies, while honoring quorum provisions.
In order to avoid large gathering at one place, the companies may consider provision of video link facilities at different locations considering the geographical dispersal of its members.
The companies shall consider basic protective measures during the meeting including facility of cleaning hand with sanitizers or soap and water. Moreover, for safety of members seating arrangement shall be made at appropriate distance.
Furthermore, voting through postal ballot may be considered by the chairman of the meeting or by the members present in person or through video-link or by proxy having not less than one-tenth of the total voting power by demanding poll for resolutions.
This is safer option in current situation. The members of a private company or a public unlisted company (having not more than 50 members), may pass a resolution (ordinary or special) by circulation signed by all the members for the time being entitled to receive notice of a meeting, except for the ordinary businesses specified under sub-section (2) of section 134 of the Companies Act, 2017 to be conducted in the annual general meeting.
The directors may hold their board meetings through tele or video link provided that the minutes of such meeting are approved and signed subsequently by all the directors.
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Centralized repository to facilitate effective settlement of insurance claims: SECP
KARACHI: Pakistan’s first ever centralized information repository has been launched on Monday for life insurance sector.
This will complement government’s objectives of providing ease of doing business and enhanced consumer protection.
Aamir Khan, Chairman, Securities and Exchange Commission of Pakistan (SECP) in his keynote address said that the initiative would augment technological advancement in the insurance industry while ensure facilitation and protection of policyholders.
He hoped that it would facilitate effective settlement of insurance claims and cause reduction in mis-selling and policy churning.
“We, at the SECP are very mindful of our responsibilities as a progressive regulator that needs to help the industry to develop and grow, and simultaneously, create linkages between its regulated sectors and the real economy”, Khan said and underlined that the centralized documentation of data in digitalized form is critical to achieving transparency, speed and cost effectiveness.
He informed participants that the SECP has already embarked upon a transformational journey of digitalization through its recently launched initiative – ‘Leading Efficiency through Automated Prowess (LEAP).
This will enable 100 percent end-to-end automation, complete integration with multiple government agencies for one-time registration, and digitalization and storage of financial statements of companies through introduction of Extensible Business Reporting Language (XBRL).
The repository that will function under the regulatory impetus of SECP will hold critical data of life insurance policies electronically.
Shaukat Hussain, Commissioner Insurance, Moin M. Fudda, Chairman, Centralized Depository Company (CDC), Badiuddin Akber, Chief Executive Officer, CDC, senior officials from SECP, CDC, CEOs and representatives of life insurers, non-life insurers, and relevant stakeholders attended the launching ceremony.
The Centralized Repository will enable electronic storage of life insurance and family takaful policies and serve as central point for critical policyholder related information.
It will aid the underwriting function of the insurers to determine the appropriateness of an insurance policy, the level of insurance coverage and affordability of the insurance policy for the customer which will ultimately result in need-based selling and substantial reduction in mis-selling.
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SECP proposes amendments to prevent corporate money laundering
ISLAMABAD: Securities and Exchange Commission of Pakistan (SECP) has proposed amendments laws to prevent money laundering through corporate entities.
A statement issued on Tuesday said that the SECP has issued a set of notifications, soliciting public consultation on drafts of amendments to the Companies (Incorporation) Regulations, 2017, Companies (General Provisions and Forms) Regulations, 2018, Foreign Companies Regulations, 2018, and Limited Liability Partnership Regulations, 2018.
The proposed amendments collectively make disclosures regarding the ownership and control structure of the companies and limited liability partnerships more transparent.
These amendments, issued in line with the recommendations on transparency of legal persons issued by the Financial Action Task Force, will help in identifying the real owners of such entities.
The amendments also propose to explicitly prohibit the issuance or transfer of equity and debt securities of a bearer nature as well as to increase the period for retention of records of dissolved companies.
The amendments will address the deficiencies highlighted in the country’s mutual evaluation report published by the Asia Pacific Group on Money Laundering in October 2019.
With the effect of propose amendments, Companies and LLPs would have to provide additional information to SECP, if the ownership and control structure of such entities is obscured through a chain of multiple entities, whether registered in Pakistan or abroad.
The draft Regulations define an ultimate beneficial owner as a person who exercises ownership or control rights over a company or LLP indirectly through multiple layers of corporate entities or other legal persons or any other arrangements.
Amendments suggested specifying a threshold of a minimum of 25 percent of ownership or control rights of the ultimate beneficial owner in the reporting entity, which would be owned through multiple layers of intermediate corporate entities.
In order to give effect to the proposed amendments, the Commission has also publicized the substantive provisions being added to the enabling laws, i.e. the Companies Act, 2017 and the Limited Liability Partnership Act, 2017.
The proposed amendments are placed on SECP’s website for public consultation.
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SECP proposes amendments to AML, CFT regulations to comply FATF recommendations
ISLAMABAD: Securities and Exchange Commission of Pakistan (SECP) has proposed amendments to Anti Money Laundering and Countering Financing of Terrorism Regulations, 2018 as recommended by FATF.
The SECP on Wednesday said that the amendments had been proposed to further strengthen SECP’s AML/CFT regime.
The proposed amendments elaborate on the Risk Based Approach requiring regulated persons (RPs) including; securities brokers, futures brokers, insurers, Takaful operators, non-banking finance companies (NBFCs) and Modarabas to conduct risk assessment that is aligned with Pakistan’s latest National Risk Assessment and ensure implementation of Targeted Financial Sanctions.
The minimum information required for the purpose of KYC/CDD has been listed to make documentation requirements simple and clearer.
Moreover, the draft amendments provide more clarity on verification for Beneficial Ownership, close associates and family members of PEPs. The RPs are encouraged to use technological solutions for screening and monitoring of transactions as per best practices.
The SECP has tried to address the regulated sector’s feedback regarding gaps in the implementation of AML/CFT Framework.
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Stock brokers express serious reservations on proposed new regime
KARACHI: PSX Stockbrokers Association has issued rebuttal on propaganda of Securities and Exchange Commission (SECP) through media to pass the proposed new brokers regime (NBR).
In a press release issued on Monday, it said that firstly, the so called “Small Brokers” term do not exist.PSX Stockbrokers Association (PSA) being representative of more than 66% of the Brokers Fraternity has serious reservations on the Proposed NBR. Regulators approach to defuse the tension by using Small, Medium and Large Size Brokerage Houses is an effort to divide and rule.
None of the objectives, used to float this NBR, can be achieved by merely increasing the Net-Worth of the Stock Brokers. Clearing and Settlement Risk, as envisaged as Primary Objective, do not exist particularly when:
1. Pre and Post trade margins are taken
2. PSX settles trade on T+2 basis
3. Minimum Rs.16 million per broker is being collected as margin under Base Minimum Capital (BMC) irrespective of any trade
4. Minimum Rs.5 million under Net Capital Balance
5. Minimum Rs.7.5 million under Liquid Capital Balance(LCB)
Apart from the above, a total fund of more than Rs.7 billion is accumulated under Settlement Guarantee Fund and Investor Protection Funds collected by National Clearing Company of Pakistan Ltd (NCCPL) and Pakistan Stock Exchange (PSX) respectively.
Stock Market declined by more than 50% from May 2017, from 53,500 Index to 28,000 Level without any clearing and settlement default. This clearly reflects that Exposure Margins, acquired by Front Line Regulators, have also minimized, if not eroded the existence of Clearing and Settlement Risk.
As far as the Custody Risk is concerned, this Proposed NBR in fact increases the said risk, rather than reducing it. A simple calculation based on the parameters provided under the scheme would reveal that Stock Brokers would now be allowed custody by more than 200% of what is allowed currently.
The foregoing clearly reflects that none of the objective of this NBR will be achieved rather than Custody Risk will be concentrated more in few hands.
Proposed increase in Net-Worth of Rs.65 million in the NBR cannot justify allowance of 200% increases in Custody.
Therefore, it cannot be claimed that it “primarily aims to strengthen the Capital Market and restore Investor’s Confidence”
Commission, while trying to aggravate using AML/CFT/FATF requirements, is unaware of the progress made by the Stock Brokerage Industry and we quote below extract from Pakistan National Risk Assessment (PNRA) Report, published in September 2019, by Ministry of Economic Affairs, wherein, clause 150 states that:Considering that all the transactions coming to the securities markets is through banking channel and the primary focus of investors in these markets is investment in securities of the companies, the securities markets are exposed to a lower TF threat abuse. Further, LEAs and EMU have so far not found any incident of TF having a link with the securities or commodities markets.
Anti Money Laundering Act, 2010, was promulgated on March 27, 2010, and Stock Brokers being Sole Properties were not made part of it. Concept of Corporate Brokerage Houses was implemented after the Demutualization in 2012.
Furthermore, the claims by SECP’s insider that 27 brokers have defaulted during last 10 years resulting in defaulting of Rs5.8 billion, is nothing but aggravating the situation as prior to demutualization Stock Broker’s Membership Card was valued at Rs150 million. Moreover, it would have been much better had the names and amount of defaulted brokerage house were also disclosed so as to give clearer picture. The average amount of Rs200 million defaults as being painted in the media is misleading.
The hidden objective of this NBR can be visualized by Section 2.2.3 of the Concept Note on NBR issued in November 2019, which stipulates that, in order to save the compliant brokerage houses that have incurred substantial compliant cost, this NBR is being introduced and all the brokerage houses are therefore forced to adopt all the compliance requirements irrespective of the nature, size and complexity of business.
This is to ensure that these third generation brokerage houses should be compelled to incur the same amount of expenses as incurred by the brokerage houses with research facilities. Regulators have overlooked the concept of discount brokerage houses, exist worldwide.
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SECP extends company registration facility to transgenders
ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has extended facility of company registration to transgenders community.
The regulator introduced a separate category for members of transgenders community in its online portal for company registration and compliance i.e. eServices.
This initiative is in line with the government efforts to grant fundamental rights to transgender community, under the “the Transgender Persons (Protection of Rights) Act, 2018”.
This Act allows individuals to mention their identity on all official documents including IDs, passport, educational certificates and driving licenses.
Now, in eServices, a person has an option to self-identify under three classifications i.e. male, female and other. With this initiative, the transgender community is able to register a company or become shareholder or director in a company with personal identity of their choice.
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Companies listing simplified to promote capital formation: SECP
ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has said amendments have been made to regulations related to Initial Public Offering (IPO) to make listing simplified for promoting capital formation through securities market.
In a statement on Friday, the SECP said that it revamped initial public offering (IPO) regime to make the IPO process simple, cost effective and more efficient.
The amendments in IPO Regulations 2017, have been made after thorough consultation with market participants with an objective to promote capital formation by facilitating issuers and safeguarding the interest of general public by enhancing disclosures.
In the new set of regulations, the objective eligibility criteria for listing of companies have been simplified to promote capital formation through securities market.
Moreover, the issuers that have a track-record of less than three years and were not making profit from last two years are allowed to raise capital from securities market.
However, such Issuers are required to submit a business plan and provide enhanced risk disclosures in the offering document for prospective investors.
Further, with perspective of providing ease and reducing cost of IPOs, the requirement of submitting audited accounts has been reduced from 5 to 2 years.
In addition, the time frame relating to submission of progress report by the Issuer has been increased from quarterly to half yearly basis.
To safeguard the interest of the general public, certain parameters for green field projects (GFPs) have been introduced.
The said parameters include: (i) At least 51% equity contribution by the sponsors; (ii) successful business track record of the sponsors; (iii) experience and skills of the management to run GFP; (iv) mandatory financial close; (v)risk-based disclosure in the offering document etc.
Further, an exit offer mechanism has been introduced to protect the investors in case of change in the principal purpose of the issue.
In order to encourage foreign investment in the country, the Book Runner has been allowed to waive the margin requirement of the institutional investors including foreign investors.
Moreover, related parties have been allowed to perform different roles in the same IPO Transaction. The new IPO regime is a shift towards disclosure-based regime.
Disclosures pertaining to principal purpose of the issue, risk factors, share capital, financial information, management of the issuer, legal proceedings and overdue loans are made part of the prospectus.
A new section titled summary of the Prospectus has been introduced to help investors better understand the offering document.
Moreover, to facilitate small enterprises, startups and Greenfield companies that aspire to raise funds through capital markets, the SECP has already introduced an alternate board namely Growth Enterprise Market (GEM) at PSX.
The GEM is in addition to PSX’s main board for listing and trading of equity securities.
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SECP drafts framework to facilitate startups in Pakistan
ISLAMABAD: Securities and Exchange Company of Pakistan (SEC Pakistan) has issued draft regulatory framework to facilitate startups in the country.
The SECP said that with the objective to promote growth in the startups sector of Pakistan, it is necessary to make relevant changes in Company Law to facilitate the incorporation process for the startups and provide a conducive regulatory environment.
A) Proposed changes in the Parent legislation (Companies Act)
i) Definition of Startups
In the Third Schedule to the Companies Act, the following category is proposed to be added:
An entity shall be considered as a Startup:
a) Upto a period of 10 years from the date of incorporation/registration
b) Turnover of the entity for any of the financial years since incorporation/registration is not greater than 100 Million Rupees
c) Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.
Provided further that an entity formed by splitting up or reconstruction of an existing entity or a separate company with similar objects and ownership shall not be considered a “Startup Company”
i) Amendment in the Section “83 – Further issue of capital” to offer “Employee Stock Option Scheme (ESOS)” shall help address the employee retention and reward issues being faced by startups.
The following new proviso is proposed to be added:
“Provided that the directors of private limited company may allot the declined or unsubscribed shares to its employees under “Employees Stock Option Scheme”, on such conditions, as may be specified.”
ii) Amendment in the clause “88 – Power of a company to purchase its own shares” shall facilitate ESOS option and shall facilitate buy back of shares by companies, since they do not have a secondary market. It would also facilitate startups in case, any founding member needs to exit from the company by allowing return of shares to a company.
B) Changes required in Companies (Further Issue of Shares) Regulations, 2018
i) Amendment in the clause “7. Application to the Commission for issue of shares other than right” is a consequential change whereby no application for approval shall be required to be made to the Commission under Section 83 of the Act, by a Private Company, and shall only be required to maintain and file the documents with the Commission not later than two months from the decision to issue such shares, as specified in sub-regulation (2) below.
ii) Conditions for issuance of shares with differential rights
The requirement for the company not to default in filing financial statements and annual returns for three financial years immediately is being changed to preceding the financial year in which it is decided to issue such shares.
iii) Furthermore, for a private limited company, the valuation mechanism of non-cash consideration and further conditions, if any, will be amended in Companies (Further Issues of Shares) Regulations, 2018.
Introduction of Regulatory Sandbox
Regulatory Sandbox is a tailored regulatory environment for conducting limited scale, live tests of innovative products, services, processes, and/ or business models in a controlled environment for a limited period of time so as to assess their viability to be launched on full-scale, and to determine the compatible and enabling regulatory environment that will be conducive for the innovative solutions. The objective of these Guidelines is to purposefully meet the above.
The Regulatory Sandbox is primarily applicable for new products, services or business models which have not been addressed under existing laws and regulations; or these new ideas bring an innovative approach to the market and there exists considerable uncertainty in terms of unexpected adverse outcomes or existing regulatory framework does not fully address the solutions proposed to be experimented through the regulatory sandbox.