SECP likely to register deficit for the first time

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) is likely to register a deficit for the first time after its policy board’s decision of slashing the regulatory fee on Mutual Funds by whooping 80 percent in a single go.

On one hand the federal government employs its political capital to discipline the fiscal deficit by increasing gas and electricity prices, and on the other hand, revenue from Non-Banking Finance Companies has been slashed by 80 percent.

The regulatory fee on Mutual Funds has been slashed by whooping 80 percent in a single go by the Policy Board of the Securities and Exchange Commission of Pakistan through SRO 685 (I)/2019. The SRO has taken effect from July 1, 2019.

The amount deposited in the national exchequer under this head of account in the previous year ended June 2019 was more than Rs450 million. However, the regulatory body’s revenue will be decreased by 80 percent under this head in the ongoing fiscal year.

Under the SECP Act 1997, the regulatory body is required to deposit the surplus revenue over its expenditure to the Federal Consolidated Fund managed by the federal government.

As per the SECP’s 2018 Annual Report, net surplus over expenditure amounted to Rs301 million (Rs415 million: 2017). If the expenditure are to remain constant, SECP is headed towards a deficit for the first time as a result of huge cut in revenue.

“The executive function of the Commission, i.e. the Chairman, Commissioners and the departments had strongly opposed the decision of its policy board. It was imposed by influential Chairman Mr Mirza and a few members of the Policy Board.

This decision has benefited large NBFC and its management with absolutely no benefit to the unit holders. It shall adversely affect the financial autonomy of SECP,” informed a well-placed source privy to the information.

The regulatory annual fee is directly linked to the size of assets of these companies and given that the capital market has started to pick up the momentum, a loss of revenue more than Rs550 million is expected to be registered in ongoing fiscal year as a direct consequence, commented the source. Similarly, the annual expenditure of the policy board meeting have increased manifold in the fiscal year 2018-19.

According to official documents submitted by SECP, the annual expenditure of policy board meetings for the year 2018-19 was recorded at Rs7,938,549 which includes Rs1,450,208 for hotel accommodation, Rs4,700,000 for meeting fee (both board and its committee meetings), Rs1,583,170 for travel expenses and Rs202,171 were spent on other items (refreshment, lunches etc). Interestingly, previous year the annual expenditure incurred in board meetings was less than Rs1 million.

The News sent a detailed questionnaire to SECP for its official response. Following is the regulatory body’s official response about slashing the regulatory fee on Mutual Funds and board’s meeting expenditure.

“The federal government on Nov 16, 2018 reappointed the Securities and Exchange Policy Board. The federal government also appointed Professor Khalid Mirza, a person of eminence from private sector as Chairman of the Board along with five other private sector members. Prior to Professor Khalid Mirza, ex-officio, the federal secretary for finance was the Board chairman.

The reappointed board took many initiatives in regard to its mandate and particularly reviewed laws and subsidiary legislation so as to simplify what is needed/essential. The board also approved substantial reduction in its fees charged by SECP in order to remove harsh regulatory impediments that hamper growth of financial services and facilitate in the ease of doing business.

The board constituted

(i) the Oversight Committee to look at the regulatory and enforcement actions of the Divisions/Departments of the Commission;

(ii) the Regulations Committee to give recommendations on any policy, law, rules and regulations proposed or any amendment to the existing policy, law, rules and regulations, to be made by the Commission;

(iii) the Insurance Committee to look at the regulatory issues of the insurance industry and

(iv) the IT & HR Committee to oversee the HR, IT and Audit areas of the Commission and give recommendations thereon”, says SECP in its official response.

About the increase in annual expenditure of board meetings the SECP says, “With regard to increase in expenses of the Policy Board during the current financial year as compared to previous years, the following variations may be considered as rationale:

(i) The Board, which is empowered, increased the meeting fee admissible to private sector members @ Rs75,000/- for attending a Board meeting and Rs50,000/- for attending a meeting of a Committee, effective from Dec 19, 2018 (previously this was Rs25,000/- for both since 2017);

(ii) During the year under review, 10 Policy Board and 24 Board Committees meetings were held as compared to 5 and 8 respectively previous year.

(iii) During the year total number of attendance of private sector members in meeting was 54 in Board and 48 in Committee as compared to last year 17 in Board and 16 in Committee”.