ISLAMABAD (April 09 2009): The Securities and Exchange Commission of Pakistan (SECP) is to impose a ban on issuance of fresh licences to national banking finance corporations (NBFCs) for at least two years, excepting foreign investment, real estate investment trusts (REITs), private equity and venture capital fund (PE and VCF) and pension funds, sources in SECP told Business Recorder here on Tuesday.

According to the regulator, this would result in consolidation and revamping of NBF sector, improved risk absorption capacity (enhanced capital requirements) and economies of scale (larger entities). Sources said that to encourage retail investor base, it would be suggested to the federal government that it should disallow institutional investment in National Savings Schemes (NSS).

The role of industry associations like Mutual Funds Association of Pakistan (MUFAP), Modaraba Association of Pakistan (MAP), Leasing Association of Pakistan (LAP), Investment Banking Association of Pakistan (IBAP), need to be significantly enhanced towards setting performance standards, code of conduct for asset/fund managers, minimum qualification for distributors, guidelines for advertisement, implementation of consistent methodology of true price discovery, brand building, sources added.

To safeguard the interests of depositors and other stakeholders, sources said, it is imperative to have a separate law for the NBF sector. The new law should empower SECP to appoint administrator on mutual funds, debar individuals, if required, recover penalties in a more effective and efficient manner, do soft regulation (as is practised by SEC USA, SBP), vary sponsoring shareholders rights (for revival purposes), and implement prompt and swift winding up process. Similarly, they said, significant amendments are required in Modaraba law with regard to enhancing rights for Modaraba certificate holders, minimum equity requirement for Modaraba management companies (MMC) and Modarabas, list of permissible activities to eliminate regulatory arbitrage, single object clause to align interest of MMC with Modaraba business, introduction of performance based fee concept and introduction of trustee concept to enhance corporate governance.

The SECP is of the view that federal and provincial governments can reduce their fiscal burden by tapping REITs market. However, the government has to realise that the total tax load on a real estate transaction should not exceed 4-5 percent (international best practice).