ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has directed the securities managers (eligible securities brokers) to issue “Investment Policy Statement” (IPS) to their customers, highlighting customers’ tolerance for risks, liquidity requirements and tax constraints.
The Securities Managers (Licensing and Operations) Regulations, 2024, has specified the details of the said IPS for their customers.
According to the regulations, the securities manager shall, after due consultation with the customer and keeping in view the customer’s risk assessment, prepare a written Investment Policy Statement (“IPS”) for the customer.
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The IPS shall cover at minimum the following aspects:
(a) the customer’s qualification, knowledge and understanding of the relevant financial markets, types of financial products or arrangements and the risks involved;
(b) the length of time the customer has participated in relevant financial markets, the frequency of dealings and the extent to which the customer has relied on financial advice from investment service providers;
(c) the size and nature of transactions that have been undertaken by the customer in relevant financial markets and the composition and size of the customer’s existing investment portfolio, if any;
(d) investment objectives including types of securities in which investment would be made specifying proportion of exposure and restrictions, if any;
(e) customer’s tolerance for risk i.e. both ability and willingness of customer to bear risk, return objectives and a detailed statement of risks specific to investment policies and objectives;
(f) liquidity requirements, tax constraints and time horizon for investment in relation to specific security and overall portfolio; and
(g) other unique circumstances, matters or aspects of the customer which the securities manager considers relevant.
The securities manager shall discuss the approved IPS with the customer at least annually to determine if the IPS remains appropriate for the customer in light of customer’s changing investment preferences or circumstances.
Any change in the IPS shall only be implemented after securing the customer’s consent in writing.
If the circumstances materially change in the interim and warrant an earlier assessment of the IPS, the securities manager shall undertake the same after discussion with the customer.
The agreement and IPS shall be signed, either digitally or otherwise, by the securities manager or its authorized signatories and the customer or its authorized signatories and shall be maintained by the securities manager in its record for inspection purposes by the auditors, officers of the Commission, or any other relevant agency or authority, provided that an authorised signatory shall not be permitted to sign the agreement or IPS on behalf of an individual customer; provided further that a copy of the agreement and IPS shall also be provided to the customer at the time of signing the agreement and IPS.
The Commission may at any time demand a copy of the agreement and the IPS to be furnished, SECP added.
Copyright Business Recorder, 2024