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Non-banking Finance Companies Rules notified

ISLAMABAD (April 02 2003) : The SECP on Tuesday notified the Non-banking Finance Companies (Establishment and Regulation) Rules, 2003 (NBFC Rules) in exercise of the powers conferred by section 282 B of the Companies Ordinance, 1984 (XLVII of 1984).

Earlier, Finance Ministry had approved these Rules. Acting Chairman of Securities and Exchange Commission of Pakistan (SECP) Abdul Rehman Qureshi on Tuesday said that around 69 Non-Banking Finance Companies (NBFCs) are expected to be registered by May 15, 2003 after notification of the NBFCs Ordinance on Tuesday. He was addressing a press conference.

The NBFC Rules were prepared after consolidating the existing rules governing leasing companies, investment companies and investment advisors, asset management companies, venture capital companies and venture capital funds, housing finance companies and investment finance companies, and forwarded to Ministry of Finance for onward submission to Law, Justice and Human Rights Division.

“After vetting by the Law, Justice and Human Rights Division, the NBFC Rules were finally cleared by the Ministry of Finance.”

Qureshi said that NBFCs Ordinance would facilitate in a manner that a single entity – the NBFC – would be able to provide a wide range of financial services through a one-window operation.

The NBFC Rules, framed under sub-clause 282-B of the Companies Ordinance, 1984, were necessitated as pursuant to the amendments in the Companies Ordinance, 1984, all the existing Non-banking Financial Institutions (NBFI) – with the exception of modarabas and Development Financial Institutions (DFI) – have been re-classified as Non-banking Finance Companies (NBFC) and brought under the regulatory ambit of the SECP.

This essentially means that the SECP shall also regulate investment banks, discount houses, venture capital companies, housing finance companies, National Investment Trust (NIT) and Investment Corporation of Pakistan (ICP), in addition to modarabas, mutual funds and leasing companies that were already under its regulatory purview.

“The main objective of implementation of the NBFC concept is to consolidate the activities relating to non-banking financial sector under one umbrella and promote these activities by strengthening the capital base and reducing operational costs.

The NBFC Rules contain separate chapters relating to operational aspects of leasing, investment finance services, housing finance services, venture capital investment, asset management services and investment advisory services.

Regarding the licensing criteria, every company in existence and engaged in any form of business as specified in the NBFC rules shall apply in writing to SECP for license before 15th May 2003.

“However, till such time that a new license is issued, the existing licenses would be deemed to be valid for the purposes of these rules,” he added.

The NBFC Rules also specify the minimum paid-up capital requirement to be maintained – as separated tiers – for each form of business to be undertaken by a NBFC, which is for investment finance services it is Rs 300 million; investment advisory and/or asset management services Rs 30 million; discounting services Rs 200 million; venture capital investment Rs 5 million for a venture capital company; leasing Rs 200 million; and for housing finance services it is Rs 100 million.

Qureshi said the NBFC rules also contain conditions for issuance of certificates of investment (COI)/certificates of deposit (COD) by NBFCs undertaking leasing /housing finance services/investment finance services.

The accounts of every NBFC shall be audited by an auditor who is a chartered accountant within the meaning of the Chartered Accountants Ordinance, 1961 (X of 1961), appointed by the NBFC with the approval in writing of the Commission which shall be obtained prior to proposing the name of the auditor at the Annual General Meeting.

The Leasing Companies (Establishment and Regulation) Rules, 2000, Investment Companies and Investment Advisors Rules, 1971, Asset Management Companies Rules, 1995, Venture Capital Companies and Venture Capital Rules, 2001, Housing Finance Companies (Establishment and Regulation) Rules, 1997, and Investment Finance Companies SRO 585(I)/87 have been repealed and replaced by the NBFC rules.

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