The Appellate Bench of the Securities and Exchange Commission of Pakistan (SECP) has observed that all the Asset Management Companies (AMCs) are bound to abide by the requirements prescribed in the Non-Banking Finance Companies and Notified Entities Regulations 2008 (NBFC and NE Regulations 2008) and Non-Banking Finance Companies (Establishment and Regulation) Rules 2003 (NBFC Rules 2003).
According to an order of the SECP Appellate Bench-II against a Non-Banking Finance Company (appeal No 42 of 2013) issued here on Thursday, the NBFC regulatory framework is applicable to all the NBFCs operating within its jurisdiction; hence the Appellant (NBFC) cannot be treated as exception to others. Therefore, all the AMCs are bound to abide by the requirements prescribed in the NBFC and NE Regulations 2008 and NBFC Rules 2003 and all the directives and circulars issued time to time by the Commission.
Bench further observed that it may be appreciated that the laws, rules and regulations are framed in a manner to protect the interest of the investors at large. It may also be noted that per party exposure limit or other such restrictions are contained in law with the basic intent to protect the investors from unnecessary risks in a situation of unforeseen development. Although in the case of a fund such exposures produced considerable gain for the investors but it could have been otherwise had the market faced any untoward situation.
The contravention of Regulation 55(5) of the NBFCs and NE Regulations 2008 is evident from the record and same has been admitted by the Appellant (NBFC). Furthermore, it is also on record that due to this default the Appellant has achieved favourable and better results for the investors. The Appellant has regularised the excess exposure after issuance of the show cause notice It has been established that the Appellant has failed to perform its duties as required by law therefore, the Bench cannot absolve the Appellant from the proven violation, however due to the fact that appreciation of the market value of previously purchased shares caused breach of per party exposure, subsequent compliance of Regulation 55(5) of the NBFCs and NE Regulations 2008, benefit earned by the investors and present facts with respect to revocation of a close end fund, we are inclined to take a lenient view in terms of penalty imposed through the Impugned Order.
In view of the aforesaid, bench hereby converted the penalty or Rs 500,000 into stern warning, and in case of similar non-compliance in future, a strict action against the Appellant would be taken. The appeal is disposed of, bench added. Brief facts of the case are that the Appellant is a Non-Banking Finance Company licensed to undertake the businesses of asset management services under the Non-Banking Finance Companies (Establishment and Regulation) Rules 2003 (the NBFC Rules 2003) and Non-Banking Finance Companies and Notified Entities Regulations 2008 (the NBFC and NE Regulations 2008). The Appellant was managing two close ended funds.
In terms of Regulation 55(13) of the NBFCs and NE Regulations 2008, the excess exposure is required to be regularized within three months of the breach of limits unless the said of three months is extended by the Commission on an application by the Asset Management Company. The Commission granted extension till 30/12/11. However, the Appellant continued to remain non-compliant with the aforesaid regulatory requirement and did not bring exposures limits within the allowable limit of 10% of its total net assets.