The SECP and its increasingly crucial role

It has recently notified AML and CFT Regulations

KARACHI: The Securities and Exchange Commission of Pakistan (SECP) has achieved a lot over the years.

Recently, however, its role has become even important as Pakistan looks to counter financing of terrorism and tackle money laundering.

The SECP notified Anti-Money Laundering (AML) and Countering Financing of Terrorism (CFT) Regulations, 2018 on June 14, 2018. The regulations consolidate earlier AML/CFT regime for financial institutions regulated by the SECP, namely, securities brokers, insurance companies, non-banking finance companies and modarabas. These regulations are fully compliant with the Financial Action Task Force (FATF) recommendations, which are mandatory to adopt for Pakistan as a member of the Asia Pacific Group on money laundering.



The regulations shift perspective from one-size-all-fit to a risk-based approach and now, the focus is toward high-risk areas. The introduction of simplified due diligence for low-risk customers shall allow such customers to avail services of financial institutions with relative ease, whereas it will enable financial institutions to focus their resources on high risk customers, which are subject to enhanced due diligence.

In order to ensure that criminals are not able to hide their identity through use of complex ownership structure of companies, partnerships, trusts or other similar forms, the financial institutions are now required to identify the ultimate beneficial owner. Financial institutions are now required to carry out self-risk assessment relating to money laundering and terrorist financing risks faced by them. This requirement envisages making financial institutions having greater self-awareness and accordingly, implement internal control measures that commensurate with their risk profile.

Moreover, the sources of wealth and income will be checked and validated in Enhanced Due Diligence cases only. AML/CFT requirement has been introduced at the groups level, each group is required to develop group-wide AML/CFT policies and procedures consistently applied and supervised across the group.



The next challenge is effective implementation of these regulations to effectively control and limit the phenomenon of money laundering. The transition from one-size-all-fit to risk-based approach will be the one of the core area requiring necessary attention and consideration. Moreover, capacity building and awareness of stakeholders, essentially remains the foremost area.

Key achievements

In addition, the SECP’s Policy Regulation and Development Department (PRDD) has achieved some major milestones in the last fiscal year from July 2017 to June 2018.

This includes fresh election of directors at the Pakistan Stock Exchange (PSX), establishment of a fully operational centralised customer protection & compensation fund under the Securities Act, and approval of amendments to allow foreign investors, other than foreign strategic investors, to acquire up to 10% shares of PSX, which can be extended by another 10% by the Commission.

The SECP also implemented revenue optimisation measures for the PSX, and approved the futures exchange licensing regulations approved. An overhaul was done of framework governing companies in violation/non-compliance of PSX regulations. It also revamped the PSX penalty regime for brokers to strengthen its enforcement capacity. Reforms were made in the Negotiated Deal Market (NDM).

Also, the removal of Code of Corporate Governance from PSX Regulations pursuant to framing of new Code under the Companies Act, 2017 and description of material information for disclosure by listed companies as contained in PSX Regulations augmented to address loopholes and align with international standards was also implemented. It enabled electronic submission of annual reports, quarterly accounts and other information by listed companies to PSX.

With regards to the National Clearing Company of Pakistan Limited, the SECP managed to revamp the custody model, and increase the number of MTS and DFM eligible securities. It conducted a aapital benchmarking exercise of NCCPL for implementation of optimum levels of financial resources and added amendments to Clearing Houses (Licensing and Operations) Regulations, 2016 with respect to Futures Market Act, 2016. Amendments were also made to the NCCPL Regulations to consider T-Bills as acceptable collaterals for all market segments where Margin Eligible Securities are accepted as collateral.

For the Central Depository Company, amendments were introduced to regulations to maintain and develop an electronic Centralized Cash Dividend Register and other related matters in accordance with the provisions of the Companies (Distribution of Dividends) Regulations, 2017. Implementation of mechanism for controlling acquisition of shares in a listed bank in excess of 5% and model for treatment of listed securities under Voluntary Declaration of Domestic Assets Ordinance, 2018 (tax amnesty) was also completed.

The SECP also introduced enforcement powers of Chief Compliance Officer of CDC in place of CEO, and placed a mandatory requirement for account-holders to provide IBAN for opening and maintaining sub-accounts in CDS.

Revision in schedule of fees and Deposits of CDC to rationalise the tariff applicable on issuers of redeemable securities, and reporting of net-worth for determination of limits for Assets under Custody (AuC) was also implemented.

PMEX

For the Pakistan Mercantile Exchange, de-notification of Collateral Management Services as a form of business under Section 282A of Companies Ordinance, 1984, due to introduction of Section 457 of the Companies Act, 2017 was done. It also launched a pilot project on Commodity Murabaha Product and a number of currency and commodity futures contracts were also launched at PMEX such as EUR/Yen, GBP/EUR, as well as US Equity Indices – S & P, Dow and Nasdaq.

 

Published in The Express Tribune, July 16^th, 2018.

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