Chairman SECP Mr. Salman Ali Shaikh and Governor SBP Syed Salim Raza signed an MoU on information sharing and coordination, and a letter of understanding for creation of a joint task force to determine risks posed by conglomeration at SECP
In the recent past, substantive structural changes have been witnessed in the financial markets and in the traditional operators in banking, investment firms and insurance companies. These changes caused by functional integration, diversification and the de-specialisation have led to the emergence of financial conglomerates and large financial groups which pose various risks to the stability of the financial markets and also to the group entities.
The State Bank of Pakistan (SBP) and Securities and Exchange Commission of Pakistan (SECP) are committed to minimising the risks of group contagion and regulatory arbitrage in financial conglomerates while simultaneously fostering diversification of products and activities. In the current vulnerable times, it is felt that the objectives of proper supervision of these financial conglomerates can be better served through greater cooperation and transparency between the two regulators than undertaking any drastic changes.
The SBP and the SECP have, therefore, decided to coordinate and cooperate in their activities and enter into a Memorandum of Understanding. The two institutions have also agreed to achieve major objectives of consolidated supervision through creation of a joint task force to determine risks posed by conglomeration like contagion risk, lack of transparency in intra group transactions and liquidity risks arising from asset liability mismatch.
The joint task force’s terms of reference of which have also been agreed upon will address the concerns through the sharing of information collected from the banks and their organisations, within the framework of the respective laws of the two regulators.
The two regulators will take coordinated steps for the development of framework and capacity in the areas of credit rating, valuers, surveyors, administrator and liquidators. Fiscal measures would be proposed to both federal and provincial governments for the development of debt capital market in Pakistan.