Qudsia Bano

In a landmark move aimed at overhauling the regulatory landscape of Pakistan's financial sector, the Securities and Exchange Commission of Pakistan (SECP) has proposed a strategic framework to transform the industry associations into Self-Regulatory Organizations (SROs). The proposal, outlined in a newly released Consultation Paper, aims to enhance market integrity, foster responsible practices, and elevate investor confidence through sector-led governance, reports WealthPK.

Under the proposed framework, the industry associations will no longer function solely as advocacy bodies. Instead, they will be empowered with regulatory responsibilities, including the authority to set ethical standards, monitor member conduct, enforce compliance, and lead sector-specific initiatives. This transformation is set to occur over a three-year period, during which eligible associations will be required to convert into not-for-profit entities under Section 42 of the Companies Act, 2017.

Speaking to WealthPK, former financial expert at the State Bank of Pakistan (SBP) Dr. Ahsan Raza noted, “This is a significant step forward. By empowering the industry bodies to take on regulatory roles, the SECP is embracing a model that promotes accountability from within the sector. However, the success of this transition depends heavily on the governance structures of these associations and the SECP's oversight capacity.”

The SECP’s proposal also aligns closely with the international regulatory trends, where SROs play an increasingly vital role in ensuring compliance and market discipline. It places emphasis on diverse and merit-based membership, conflict-of-interest safeguards, transparency, and regular training of members. Additionally, the framework encourages the creation of specialized associations within broader sectors, enabling tailored oversight and advocacy for specific sub-industries.

A more ambitious element of the plan is the redefinition of how trade associations operate. By converting them into Section 42 companies, the SECP aims to instil a culture of transparency and remove profit motives from regulatory functions. The move also seeks to standardize governance practices and improve stakeholder representation. Industry stakeholders have welcomed the initiative with cautious optimism.

 Dr. Syed M. Abdul Rehman, former Shariah Adviser of SECP, said, “There is no doubt that self-regulation can drive efficiency and build investor trust, but it must be matched with clear operational guidelines, funding support, and capacity-building measures to avoid regulatory capture or inefficacy.”

The SECP's paper invites feedback from all stakeholders, including ministries, industry players, and the public. It also underscores the Commission’s long-term vision of a more accountable and competitive financial ecosystem in Pakistan.

If successfully implemented, this framework could serve as a blueprint for regulatory reform across other sectors of the economy. However, experts cautioned that without clear rules, capacity development, and sustained monitoring by the SECP, the shift could risk placing undue regulatory burden on entities ill-equipped to handle it.

As Pakistan’s financial sector continues to evolve, this initiative marks a pivotal moment where public oversight and private responsibility may find a new, more effective balance.

Credit: INP-WealthPk