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PRUDENTIAL REGULATION-XXI
Reference
BSD Circular Letter No. 20 Dated July 8, 2000
1. ASSET MANAGEMENT:
For the purpose of this Regulation the Asset Management will constitute the following:
a) Cash or portfolio management.
b) All forms of collective investment management, and
c) Custodial and Depository Services.
Banks desiring to undertake asset management services shall be allowed to do so through
subsidiary company to be formed by
them under the laws of Pakistan for the exclusive purpose of undertaking such activities.
The minimum paid-up capital o such a
subsidiary shall be not less than Rs 100 million. the companies to be set up for the
purpose shall be public limited companies
which may commence business with a bank’s equity holding of 51% in the company’s
paid-up capital. The balance 49% share
capital shall be offered to the general public.
2. Banks which have been consistently meeting the liquid assets requirements and other
credit disciplines during the latest 52
weeks shall only be eligible to set up such subsidiaries after obtaining prior clearance
of the Articles & Memorandum of Association of the proposed company from the State
Bank Subsequent amendments in the Articles & Memorandum of Association of such
companies will also require similar prior clearance from SBP.
3. The transactions undertaken/services provided by the subsidiaries set up for asset
management purposes should not create any financial obligation whether contingent or
otherwise on the balance sheet of the holding company or otherwise. The said subsidiaries
shall not be permitted to:
a) invest in real estates;
b) grant credit in any form whatsoever;
c) hold and invest in more than 1% (one per cent) of the paid-up shares of any bank or
financial institution;
d) invest in the securities of such companies which failed to earn net profit for two
financial years out of the preceding three
financial years.
4. The holding company shall ensure that subsidiaries do conduct their operations and
publish their accounts in accordance with
the internationally accepted accounting standards and disclosure requirements, besides
meeting the standards set by the domestic regulatory authorities.
5. Before accepting funds form a client, the subsidiary shall notify to the client the
avenues of investments available to it for the purpose of deployment of funds. Each asset
management deal to be undertaken by the subsidiary shall be documented in the form of a
written contract to be called "Asset Management Contract" expressly stating all
the terms and conditions of the deal and duly authenticated by the company and the
provider of funds. Each subsidiary shall be required to obtain prior approval of the
format of its standard Asset Management Contract from the State Bank of Pakistan.
6. Banks which are already engaged in fund management business if any are directed to
forthwith disclose the total amount of funds provided to them for fund management as
"Asset Management Liabilities" under the head "Other Liabilities" in
the balance sheet. Simultaneously, the corresponding assets acquired against the
Management Liabilities shall be shown as "Asset Management Assets" under the
head "Other Assets" in the balance sheet. All related returns to be submitted to
the State Bank must also carry a similar disclosure regarding Asset Management Liabilities
& Assets.
7. Banks are further directed to ensure that all existing fund management contracts must
be settled on due dates and no bank shall be allowed to undertake any fresh deal for asset
management other than through a subsidiary formed for the purpose.
II. FINANCIAL AND INVESTMENT ADVISORY SERVICES
Banks desiring to undertake Financial and Investment Advisory Services shall be allowed to
do so through subsidiary company to be formed by them under the laws of Pakistan for the
exclusive purpose of undertaking such activities. The paid-up capital of such a subsidiary
shall be not less than Rs 100 million. The companies to be set up for the purpose shall be
public limited companies which may commence business with a bank’s equity holding
upto 100% but not less then 51% in the company’s paid-up capital.
2. Banks which have been consistently meeting the liquid assets requirements and other
credit disciplines during the latest 52 weeks shall only be eligible to set up such
subsidiaries after obtaining prior clearance of the Articles & Memorandum of
Association of the proposed company from the State Bank. Subsequent amendments in the
Articles & Memorandum of Association of such companies will also require similar prior
clearance from State Bank.
3. The contracts executed/services provided by the subsidiaries set up for Financial and
Investment Advisory Services purposes should not create any financial obligation whether
contingent or otherwise on the balance sheet of the holding company or otherwise.
4. The holding company shall ensure that subsidiaries do conduct their operations and
publish their accounts in accordance with
the internationally accepted accounting standards and disclosure requirements.
