FATF requirement: SECP to implement new brokers regime

ISLAMABAD: In a bid to meet the pressing demand of the Financial Action Task Force (FATF), the Securities and Exchange Commission of Pakistan (SECP) has decided in principle to implement a new regulation regime for stockbrokers despite strong opposition. 

The new regime includes multifold compliance requirements for brokers having custody of investors’ assets and the SECP board will take three to four more weeks to deliberate new regulations and their implementation.

It has been learnt that the FATF has asked Pakistan to implement practical measures for preventing use of financial sector for money laundering and financing of terror, including in the area of capital markets.

READ MORE: SECP’s new brokers regime opposed   

According to a SECP official, the total 225 brokers at Pakistan Stock Exchange (PSX), 98 with a net worth of up to Rs100 million, “possessing only six percent of assets, and having just seven percent share in market trading, are resisting the most to the SECP’s new regulatory regime.

There are 109 brokers, who have a net worth between Rs100 million to Rs500 million, custody of 36 percent, and a trading share of 43 percent, while 18 have a net worth of more than Rs500 million, custody of 58 percent assets, and their trading share is 50 percent have no issues with the new regulations.

The SECP document showed that presently, top 60 brokers have more than 80 percent of customers and top 50 brokers generate more than 80 percent of the trading volumes. The lowest 170 brokers have just 18 percent of the total clientele.

Small brokers argue that they cannot dedicate sufficient resources to meet financial reporting requirements and are thus unable to develop a sound compliance system and meet FATF’s anti-money laundering and combating financing of terror (AML/CFT) standards.

The Pakistan Stock Exchange (PSX) Stockbrokers Association (PSA) recently warned that the implementation of new regulations would drastically shrink the volumes of the market and would ultimately prove a deathblow to the capital market.

The new regulations bar the brokers from retaining custody of those investors’ assets who are unable to dedicate sufficient resources to meet financial reporting requirements and cannot develop a sound compliance system to meet AML/CFT guidelines of the FATF.

In the new regulations, the SECP has divided the brokerage industry into three categories i.e. small-sized brokers (trading only brokers), trading and clearing broker, and trading and self-clearing brokers.

The new financial resource requirements for brokers, net worth of the trading and clearing broker (TC) licence would be Rs500 million and above, net worth of trading and self-clearing broker (TSC) license would be Rs150 million and above, and net worth of trading only broker (TO) license would be Rs15 million and above.

The SECP official said brokers are required to comply with AML/CFT regulations since they handle client assets. 


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