A proposal is under consideration to create the Council of Financial Regulators that will provide a forum for open dialogue and discussion for microscopic analysis of development aspects, systemic risk as well as policy and structural issues negatively impacting Pakistani financial markets. Sources told Business Recorder here on Wednesday that the proposal has been mentioned in the country report of the International Organisation of Securities Commissions' (IOSCO) on detailed assessment of Securities and Exchange Commission of Pakistan (SECP).
IOSCO report said that a proposal to create a Council of Financial Regulators involving Ministry of Finance, State Bank of Pakistan (SBP), Federal Board of Revenue and SECP has also been tabled. The council aims at providing a forum for open dialogue and discussion to look at the developmental aspects, systemic risk as well as policy and structural issues impacting Pakistani financial markets. In addition, the creation of a risk management wing which focuses on systemic risk assessment is also envisaged, it added.
Detailed assessment of implementation of the IOSCO principles revealed that the regulator (SECP) should contribute to a process to monitor, mitigate and manage systemic risk, appropriate to its mandate.
The report said that monitoring, mitigating and managing systemic risk is at present not a responsibility explicitly included in SECP's existing legislative mandate. Systemic risk has been made part of the regulatory objectives in the new SECP Act. It may be noted that SECP, through its various measures and reforms that focus on better governance, enhanced transparency and improved risk management does however contribute to processes which monitor, mitigate and manage the systemic risk.
In order to identify and tackle systemic risks or risks posed by significantly important financial and non-financial institutions across sectors, SECP has entered into a protocol for information sharing with the central bank. Both regulators have established mechanism of regular information sharing through a MoU on important issues that affect the overall financial sector and the economy.
Further, to develop expertise for risk measurement and analysis across sectors, SECP and SBP have established a Task Force for appropriate supervision of conglomerates having direct or indirect holdings or influence on financial sector through shareholdings as well as large exposures. These essentially involve banks, Development Financial Institutions, NBFCs, insurance companies, brokerage houses, large corporate entities and other financial institutions. The Task Force is working to develop a framework to provide an overarching supervisory control over the major stakeholders within the financial services sector.
The SECP has also entered into a MoU on information sharing and co-ordination with the FBR to effectively carry out the respective statutory responsibilities and maintain the highest level of oversight quality, while minimising duplication of efforts. The report said that Pakistan has made significant improvements in the structure and practice of regulation since the Financial Sector Assessment Program (FSAP) report and this is reflected in this assessment. Challenges remain however. At the same time the expectations IOSCO has of its member organisations has also increased, most notably since the Global Financial Crisis. The required scope of regulation is now broader, and the issue of effectiveness and of the outcomes achieved are more important features of any assessment of implementation of IOSCO's Objectives and Principles. In terms of scope, the SECP has yet to adopt effective measures that meet the demands of new Principles to identify and mitigate systemic risk, to regulate hedge funds and to mitigate the risks to investors from conflicts of interest in the work of research analysts employed by brokers, while the jurisdiction has yet to create an oversight body for the accounting and auditors that is independent of that audit profession and acts solely in the public interest. These challenges notwithstanding, the SECP has broad and comprehensive powers of investigation surveillance and enforcement.
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