ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued the Securities Managers (Licensing and Operations) Regulations, 2024. This regulatory framework aims to facilitate investment advisory in Pakistan’s securities market.
Under the new regulations, qualified securities brokers are allowed to provide portfolio management services. To do this, brokers must obtain a securities manager license from SECP. This license enables them to offer investment advisory services, a role previously restricted to other financial entities.
The updated framework aligns with SECP’s goal of opening the securities market to new participants, aiming to make investment advisory services more accessible and competitive.
Eligibility Requirements for Securities Manager License
The eligibility criteria for the securities manager license are stringent. Applicants must maintain a minimum net worth of Rs. 30 million. In addition, they are required to have a Broker Fiduciary Rating (BFR) of at least BFR 2. The SECP has established these requirements to ensure that only well-capitalized and reliable brokers can offer these services.
Additionally, brokers must demonstrate strong research capabilities to fulfill their advisory functions. This focus on research aims to ensure that securities managers can make well-informed investment decisions on behalf of clients.
Safeguards for Client Funds and Securities
The new regulations mandate that client funds and securities be held with an independent custodian. This measure is intended to protect investors from potential conflicts of interest and mismanagement of assets. By separating asset custody from portfolio management, SECP aims to create a safer investment environment.
SECP has also set a minimum investment threshold of Rs. 5 million for clients of securities managers. This threshold aims to maintain a standard of professional investment, targeting clients with significant financial goals.
Regulatory Focus on Transparency and Accountability
The 2024 regulations address several critical areas for securities managers. These include licensing procedures, standards of conduct, and the requirement to prepare an Investment Policy Statement (IPS) for each client. The IPS outlines the client’s investment objectives and risk tolerance, promoting transparency and accountability in investment practices.
To manage conflicts of interest, SECP has put measures in place to ensure that securities managers act in their clients’ best interests. This includes limitations on transactions that could present conflicts and clear guidelines for client communication.
SECP’s Vision for Market Development and Inclusivity
The SECP developed these regulations after an extensive consultative process, involving feedback from various stakeholders in the financial sector. By introducing these reforms, SECP aims to strengthen Pakistan’s capital market, attract new participants, and promote a more inclusive and competitive investment environment.
Accessing the Regulations
The complete Securities Managers (Licensing and Operations) Regulations, 2024, can be accessed on SECP’s official website. SECP encourages market participants to familiarize themselves with these guidelines as it continues efforts to make the securities market more robust and transparent.
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